Escriva's reform increases spending and puts future pensions in jeopardy

Today's pension reform, designed by Jose Luis Escriva (Social Security Minister), has a new obstacle: The Institute of Spanish Actuaries. This group joins the critical camps of the Bank of Spain and the Bank Central European Union, the European Commission, AIReF, and the CEOE.

>. This is the stark diagnosis of the college of Actuaries, a group that projects and manages economic risks. They also analyze their financial impact.

The recently approved first phase pensions, which revalues pensions using the real CPI and replaces sustainability factors with an intergenerational equity mechanism to strengthen the adequacy, is in this organization's opinion a positive but not a significant improvement in strengthening the sustainability (present or future capacity of system to fulfill its commitments acquired) and equity (actuarial equivalent between what is delivered to what is received and what is delivered) of the system. These are two key elements that, in the long-term (20-30 year), they will be able to provide a standard of life similar to their active, and protect them from poverty

This is because the Government's first package of measures will result in an increase in pension spending. It will be primarily due to the revaluation pensions with CPI but also due the repeal of Sustainability Factor. While the changes in delayed or early retirement - Escriva’s great hope of increasing collection - will produce an "uncertain outcome", but will lead to a "small decrease in spending in the best of circumstances".

This report examines the effects of the reform on the Spanish pension system. It focuses on four key elements that can be viewed from a financial-actuarial perspective: the revaluation pensions, delayed retirement, early retiring, and the Mechanism for Intergenerational Equity (MEI).

According to the actuaries, the CPI revaluation "erodes" and "threatens the sustainability of the system. While they acknowledge that maintaining the purchasing power of pensions must be an objective, the actuaries also point out that it is important that all citizens have a clear understanding of what the measure will entail and who will pay for it.

Enrique Devesa is a professor of Financial and Actuarial Economics. He warns that everyone should know the great effort that will be required to revalue pensions using the CPI. The implications of this rule will not only impact the current generation of contributors but also extend over many decades.

According to the report, the Intergenerational Equity mechanism, which will see an increase in six tenths the social contributions over the next few years, that will be used for the 'piggybank' of pensions, "doesn't result in an improvement in the pension." "The elimination or reduction of sustainability should be complemented by a mechanism that generates the equivalent level of savings," a statement that experts disagree with. The MEI in relation to the FS will result in a deficit of 7.75 percent of the GDP for 2067.

They also criticize the new system that penalizes delayed retirements. The rewards for delaying retirement should have been "more generous" at around 5.4% per annum, as opposed to the reform's 4%. They also believe that early retirement is based on an "unreasonable criteria". These experts suggest that one coefficient of 0.45% should be set for each month of anticipation.

The actuaries believe that the 2021 reform could be "completed, nuanced, or even modified" if the calculations show that it could occur. However, the calculation does not reveal that it has been adjusted to achieve the goal of creating a sufficient balance between future and present beneficiaries. The system."