Spain's pension bill hits €200bn with no plan to pay for it

Pension spending: €200bn and no plan to pay for it

Where does €200 billion a year go? State spending on public pensions will hit a record €200 billion next year, and not because of a one-off blowout: there are more pensioners, those retiring now get higher amounts because their salaries were higher, and all existing pensions are revalued at least in line with the CPI. According to the message that peine the debate, in the last election campaign there was not a single space where that figure was put on the table; another intervention replies that the issue did come up, and that all parties promised to raise them. The question is not whether they must be paid. It is who pays.

The snapshot comes from the Social Security itself: €12.017 billion a month in contributory pensions — retirement, permanent disability, widowhood, orphanhood and family benefits — according to July data released by the Ministry. To that are added the pensions of clases pasivas, the special scheme for public officials, and non-contributory pensions, paid to those who have not contributed enough to the system. The 2023 Budget earmarked €190.6 billion for the whole: 167,000 for contributory, 20,400 for clases pasivas and 3,000 for non-contributory.

Why do pensions disappear from election campaigns?

According to those taking part in the debate, no party with a chance of governing can afford to defend the opposite of "raise". All promised to increase pensions, and anyone hinting otherwise was instantly placed on the side of those who hate the elderly.

Add to that the time horizon, as one of the thread's top comments sums up: a ruler plans for four years; the bill for the pay-as-you-go system is collected by whoever comes next. If Europe puts money on the table through debt, why would anyone be the responsible one to propose cutting benefits or opening a capitalization system? The result is a mute consensus: everyone raises, no one explains where it comes from.

The calculation comparing pension spending with income tax

One of the exercises repeated in the thread compares two magnitudes growing at different speeds. As one participant recalls, in 2008 pension spending was around €80 billion and income tax revenue was on par, between 80,000 and 90,000 million. Today, he adds, the pension item has gone to 200,000 million while income tax has barely reached 100,000, little more than half of the Spanish budget.

The calculation is rough — it mixes tax bases, rates and groups — but it points to something hard to dispute: the pension system no longer competes with other items, it crushes them. When a single line eats that proportion of spending, any discussion about education, health or infrastructure starts losing.

The three paths of reform: age, calculation and maximum pensions

Raise the retirement age or change the formula that determines the regulatory base. Eliminate early retirement. Lower maximum pensions. Cut most non-contributory pensions. These are the pieces that appear every time someone dares to put the system on the table, and each drags its own problems.

Eliminating early retirement stumbles on what to do with workers who reach that age with an acquired disability. Lowering maximums forces a decision on up to what figure, and with what rule. And there is a limit almost no one disputes: you cannot apply the axe to someone who has already contributed for thirty years and is five years from retiring the same as to someone who has been contributing for five. Any transition requires time limits or the reform becomes a retroactive expropriation.

Underneath all that is a model debate: pure public pay-as-you-go system, mixed system with public assistance pension plus private capitalization — the dominant one in developed economies — or individual capitalization with the State guaranteeing only a minimum in extreme cases. Spain is in the first, with distortions.

Is the public pay-as-you-go system sustainable?

The most repeated figure in the debate is the weight of public spending on GDP: according to one participant's calculation, around 30% in 1980, 40% in 2000 and approximately 50% since 2020. In parallel, he adds, public spending per inhabitant went from about €6,000 in 2000 to €13,000. The question that trinc is uncomfortable: do we have better public services today than in 2000? If the answer is no, that differential has gone elsewhere.

There two diagnoses cross. One holds that the real hole is clientelist networks and dispensable spending, which should be audited before touching a single pension. Another replies that those networks are an effect of the current system: a country where most of the budget goes to pensions and public payrolls ends up voting for whoever guarantees the distribution, and everything else is organized around it. In the thread, AIReF is cited, which according to a participant has documented reviewable public spending in the billions.

The other hole: parliaments, subsidies and clientelist networks

Striking figures circulate in the debate about the cost of politics: 625 million for 1,817 deputies, €343,973 per seat. Another participant corrects the figure: the Congress costs around 100 million and employs some 1,500 workers, and that 625 million corresponds to all parliaments, including regional ones, with cleaning, ushers, transcribers and building maintenance included. Something similar happens, according to that same intervention, with the famous spending attributed to certain social items, where breakdowns mix four annual periods and concepts that were previously paid from other bodies.

The nuance does not deactivate the substance. Public spending has doubled in two decades and the accounts do not add up anywhere. Some calculate that the clientelist structures of parties and administrations absorb much more than the annual imbalance of the pension system. And some reply that, without touching those structures, any pension adjustment will be a drop in the bucket.

The generational clash: who pays for the party

While the pension item sets records, the country that sustains it chains precarious contracts, skyrocketing rents and, as several participants denounce, the highest youth unemployment in the developed environment. From there comes the most uncomfortable comparison: some claim that there are pensions that exceed the salary of those who pay them, and high contributions from a decade ago that today yield above the salary of a technician with two degrees.

Between those who maintain that the system is an intergenerational plunder and those who warn that without grandparents' pensions half of Spain would not make it to the end of the month, there is a figure that is repeated: many of those who contribute today do not count on receiving anything, or on receiving very little and very late. The social pact has become a mortgage signed without reading the terms.

In the end, the great agreement of Spanish democracy: pensions go up, no one explains with what money, and whoever raises a hand to ask is insensitive. Let the next one pay. And let him not complain.