The Bank Of Spain Warns Pension Spending Will Grow By 5% Of GDP By 2050 If 2013 Reform Is Suspended

The Bank of Spain warns pension spending will grow by 5 pct points of GDP by 2050 if 2013 reform is suspendedPablo Hernández de Cos, Bank of Spain's governor

The Bank of Spain has highlighted the need for structural changes in the public pension system to ensure its long-term viability, while warning against the reversal of those already made. Current week, Spain’s central bank pointed out that pension spending could increase by up to five percentage points of GDP by 2050, if items such as the revaluation index and the sustainability factor are not implemented. According to a simulation exercise presented by the entity, the revaluation index introduced after the 2013 reforms, which decoupled the rise in pensions from CPI, was the main reason behind lower pension expenditure. This measure has been suspended in recent years, as pensions have once again been updated in line with CPI. And this has taken place despite the warnings from large national and international organizations, which have flagged the risk involved in linking pension increases just to CPI.

In addition, the Bank of Spain notes that wealth in voluntary pension funds and life insurance in Spain represents an average of 1.6% of total assets for households below the medium income distribution, reaching 4% in the highest decile.

On the other hand, around 500 pensioners have protested this week outside the Bank of Spain’s headquarters in Barcelona in defence of public pensions and against the institution’s governor, Pablo Hernández de Cos. He has said there cannot be any rise in pensions and the minimum wage.