Figaredo Proposes Mixed Pension Model: 'The System Is a Zombie'

Figaredo Calls for Partial Pension Privatization: 'The System Is a Zombie'

Spain's public pension system is a zombie that has already gone bankrupt, according to economist and politician Figaredo. This week, he defended a structural reform in an article published in El Debate, proposing a mixed model that combines pay-as-you-go with mandatory individual capitalization. The proposal is not new in Europe, but in Spain, it touches a sensitive line with a voting bloc of nine million people. Critics argue it will be electorally damaging before the upcoming elections.

The diagnosis underlying the proposal cites a figure accepted by some in the debate: the contributory deficit reached 56.946 billion euros in 2025, representing 3.4% of GDP. Beyond this, consensus breaks down.

What Exactly Does the Mixed Model Propose

The core idea is to complement the pure pay-as-you-go system—where today's contributors pay today's pensions—with mandatory individual capitalization accounts. This does not privatize everything but creates a second pillar where each worker accumulates their own fund managed throughout their working life.

European precedents exist and are documented. Sweden introduced a notional defined contribution system with a mandatory individual account called Premium Pension in the 1990s. The Netherlands combines a minimal pay-as-you-go system with huge mandatory occupational funds. Denmark has a basic pay-as-you-go system plus a mandatory ATP fund. Latvia, Poland, and Estonia transitioned toward mandatory capitalized pillars. The UK applies an auto-enrolment system that functions as mandatory in practice. The common pattern: aging demographics and rising costs.

The Demographic Argument: 5 Million New Pensioners in Ten Years

The calculation supporting the urgency of the reform is stark. Five million people will retire in the next ten years, including 1.5 million civil servants with particularly high pensions. Meanwhile, the contributor base narrows. The ratio between workers and pensioners deteriorates annually.

The question looming over the analysis is what happens when the current deficit, deemed unsustainable by critics, multiplies. Proponents of the mixed model argue that a pure pay-as-you-go system cannot withstand this pressure without massive tax hikes or drastic cuts. Opponents counter that the deficit is temporary: it will disappear when the baby-boom generation passes and can be covered for a few years with other revenues.

Sweden, Germany, and the European Mirror

The German case is used as a weapon by both sides. Capitalization supporters point out that Germany reformed its system two decades ago, so workers know the rules from age twenty. Critics respond that German pensions are lower than Spanish ones and that many retirees need to supplement them with private funds or continue working.

The comparison is tricky. In Germany, most retirees live in rented housing, which consumes much of the pension. In Spain, owning property is the norm among the elderly. Spanish minimum pensions are higher than those in Germany, Italy, or France, and universal widowhood benefits add an expense layer not present in other countries.

The Capitalization Trap: Defined Benefit vs. Defined Contribution

A technical detail often omitted in public debate is that for decades, European private pension plans operated under a defined benefit regime indexed to inflation: workers knew exactly what they would receive. When unexpected inflation arrived, the financial sector pushed toward defined contribution: you put in money, and the return is a surprise.

US and UK civil servants retain guaranteed defined benefit systems funded by public money. If funds fall short, the state steps in. The rest of mortals assume the risk. This asymmetry explains why many distrust that individual capitalization benefits workers rather than just fund managers.

The Fiscal Problem of Pension Plans in Spain

The current tax treatment of pension funds in Spain is, according to critics, directly a theft. Only contributions below 1,500 euros annually, or about 125 euros monthly, are tax-exempt. Any amount exceeding this is taxed normally and taxed again upon withdrawal at retirement. The result: the fiscal incentive is so ridiculous that it does not compensate for the product.

One circulating proposal is that the Bank of Spain create its own range of low-cost index funds. This would create a public capitalization system without relying on private banks, which charge fees that eat up returns. The immediate objection: letting politicians manage pension funds also does not seem like the best idea.

The Political Cost: Nine Million Voters

The political reaction has been immediate. Some argue that announcing this before elections is a monumental miscalculation: current and near-retiree pensioners sum several million votes and do not want to hear about changes. Others counter that the current system is unsustainable, and those who deny it lie.

The paradox is that pension reforms usually apply to new contributors, not those already receiving benefits. Inflation adjustments are the only thing affecting current pensioners. This does not prevent electoral antiestéticar from doing its work: no party wants to be the one to sign the reform.

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With these elements, the most reasonable prediction is that the mixed model will not be implemented in this legislature. But the contributory deficit will remain, growing annually, and demographics do not negotiate. Sooner or later, someone will have to put on the table what today sounds like electoral heresy.