Spain’s pensions ‘nest egg’ is bleeding cash. Figures show this. But when included in a ranking which compares it with other countries, then the result is even worse. The Social Security’s Reserve Fund has gone from 67th place in the world ranking of pension funds by volume of assets to not even being in the top 100, according to BS Markets.
One of the most repeated headlines in the economic press over the last few years is the withdrawal of significant amounts of money from the Reserve Fund. Known as the “pensions nest egg,” the fund was created in 2000 in an attempt to guarantee the payment of retirement pensions even in times when there are not enough contributions being made to the Social Security. In other words, as is happening at the moment.
The value of the Reserve Fund declined by 30% last year in dollar terms, although the euro depreciation needs to be taken into account (just over 10%). This means that the Fund went from $50.377 billion at end-2014 to $35.294 billion at end-December 2015 (32.481 billion euros at current exchange rates – 1,0858 dollars/euro). A decline of $15.083 billion in just one year, according to the data compiled by consultancy firm Willis Towers Watson and the US publication Pension & Investments in the report P&I/Willis Towers Watson Global 300.
This sharp fall has meant that the pensions ‘nest egg’ no longer appears in the ‘top 100’ of the ranking of the biggest pension funds in the world. It fell to number 103 at end-2015. The Reserve Fund has also fallen back in the ‘ranking’ of sovereign funds, going from 14th place to 17th place.
In their totality, the 300 largest global pension funds have also seen a fall in the value of assets under management, in this case for the first time since 2008. But the decline has been much less drastic – 3% compared with the Reserve Fund’s 30%.
The 20 largest sovereign funds in the world have gone from managing $4.093 trillion to $4.064 trillion. This is a 0.7% drop, which contrasts even more with Spain’s case. And so its Reserve Fund has gone from representing 1.23% of the ‘top 20’ sovereign pension funds to ‘just’ 0.87%.
The dramatic rise in unemployent in the early years of the crisis meant that contributions to the Social Security sharply declined. And they are still at levels well below those pre-2008. The progressive ageing of the population is also aggravating this problem. So the government has been constantly taking money out of the Reserve Fund to meet the payments for more than 9 million pensioners over the last few years.
In 2015 alone, it distributed 13.250 billion euros, while the total since 2012 stands at 47.201 billion euros, the Social Security explained when it published last year’s figures. In the first six months of the year, the government has withdrawn 8.7 billion euros, leaving the ‘nest egg’ with 25.176 billion, according to data released in July.