The Santalucía Institute has published an analysis to measure the profitability and generosity of the Spanish pension system, a concept that is always put at the center of the objective since the public pillar is one of the most distributed benefits in relation to the average salary or payroll before retirement. The main conclusion of the study is that pensions offer a return higher than the expected growth of GDP and are therefore little or not sustainable in the long term. The profitability, measured from the internal rate of return (IRR), must be equal to or less than GDP growth to be neutral or ungenerous and therefore sustainable; However, the average profitability of the system is 3.79% and the long-term growth is between 1.2% and 1.5%. Among the pensions that obtain the most profitability are contributory careers of less than 25 accredited years or the lowest contribution bases, due to the minimum supplements.
This “Intergenerational Analysis of the Generosity of the Pension System Based on the Continuous Sample of Working Lives (MCVL) of 2022” was prepared by José Enrique Devesa (University of Valencia), Inmaculada Domínguez (University of Extremadura), Borja Encinas (University of Extremadura) and Robert Meneu (University of Valencia). They are all frequent research collaborators and have a wide catalogue of published studies on pensions.
The study breaks down the profitability of pensions according to different groups; such as gender, years of contributions, retirement arrangements, contribution regime, regulatory basis and education level. These analyses allow us to obtain a more detailed view of the groups most favored by the current system. Advance: he continues to be generous after the reformist bloc of 2011-2013 and 2021-2023.
The existence of greater profitability is “desirable” to the extent that it protects certain vulnerable groups (shorter careers or lower contribution amounts) and meets the principle of solidarity of the system.
In case of gender differences, women have a profitability of 4.28%, significantly higher than that of men, which is 3.48%. This difference of 0.8 percentage points is largely explained by their longer life expectancy.
Regarding the years of contributions to access retirement, the report details that People with less than 25 years of contributions benefit from a return higher than 6.04%while those who have contributed for more than 45 years have a considerably lower return, of 3.26%. This is explained by the impact of the number of years of contributions in the calculation of the regulatory pension base.
Regarding the differences according to the type of retirement; Ordinary pensions are those that obtain the highest profitability (4.03%)while the expected ones show a lower IRR, with 3.52%. In the case of deferred retirement, the additional annual option of 4% is more advantageous than the profit-sharing check, with an IRR of 3.75% compared to 3.33%. In other words, deferred retirements with incentive are almost as profitable as the ordinary modality (from age 65 with a minimum contribution of 38 years or more of contributions).
And according to the regulatory base; Pensions corresponding to the lowest regulatory bases have a profitability of 4.43%, exceeding the average by 0.6 points. This is due to the minimum supplements received by pensioners whose bases are smaller.
Is there a gap between the self-employed and employees? The benefits of the self-employed are proportionate to their contributions, which are on average lower than those of private sector employees. This group retires later, and also obtains a return of 3.9%, slightly higher than that of the general scheme (3.77%) and the average (3.79%).
Has the latest reform solved anything? Well, experts appreciate the measures envisaged but also the capacity of the Spanish economy, which has been reduced, and this in a distribution system like the Spanish one is essential. “We could say that the IRR is currently between 2 and 2.5 percentage points above real GDP growth, that is, the decrease in the IRR caused by successive pension reforms is lower than the decrease in real GDP growth in the long term (mainly for demographic reasons)”, they point out.
“It can be concluded that the generosity of the system towards new retirees is lower than before the 2011 pension reform, but the theoretical viability has deteriorated because the capacity of the economy to generate resources, measured by real long-term GDP growth, has also decreased,” they say. And this is due to lower growth than expected.
