The Myth Of Spain’s Pensions Fund

Spain's Social Security needs a new social pactSpain needs a new intergenerational social pact

The Social Security’s pensions fund is emptying. And this is causing huge alarm amongst current and future pensioners who believe, incorrectly, that “there’s going to be no money left and one day they’ll tell us that there is no monthly payment.”

This is completely untrue. In 2009, the pensions fund had a maximum amount of 66 billion euros and its maximum gain was 3 billion, when the yearly expenditure on monthly pensions is over 100 billion!

Yes there is a marked decrease in the Social Security’s pension fund, because contributions have fallen sharply, despite the rise in employment. The reason for this? Well, firstly, because the jobs which have been created are crappy. And secondly, because there continues to be a deep-rooted fiction that pensions should be paid out of Social Security contributions. This is a cruel and selfish lie, which has a devastating effect on jobs.

In other words, from an accounting point of view pensions are another public expense, financed out of tax revenues. If it were true that they were paid entirely out of the contributions from workers and businessmen, the system would have gone bust some time ago.

There isn’t even enough in the till to pay 3% of annual pensions; and what is in the till does not belong to pensioners. It’s as if we are stealing from and they get really angry when they are having the beer which Spaniards are paying for. That beer and those spicey potatoes are not yours. They are a gift from the distributive State and what is in the till is pure fiction, although it has a big electoral impact.

What is being taken away from you (from us) is so much part of the system that it does nothing and in addition generates a right to a pension because, they say, “that’s why I have paid into the system in all my life.” But you have contributed a pittance, the minimum amount, because the system has not created a real fund which makes enough to even pay the minimum amount. The fund is not a capitalisation fund, it’s a treasure chest. It would be better to rationalise total expenditure, trim down the autonomous regions and cut the 43% contribution from workers’ salaries to the Social Security. This is an obvious deterrent for job creation.

 

*Image: Flickr / pedrosomoes7

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://http://www.miguelnavascues.com/