Analysts from the OECD have reviewed the calculations of the Independent Financial Responsibility Authority and aligned them with the latest pension reform data. They conclude that Spain is likely to see pension expenditure outpace revenue over time, a trend that could stress the pension system as the population ages and reforms continue. The report notes that while the nation may not face the sharpest strain in the near term, the combination of aging demographics and ongoing reforms is expected to push higher spending in several European peers, including Portugal and Italy, according to OECD findings marked as authoritative.
The OECD release, issued on Wednesday, also acknowledges improvements achieved under the previous leadership of Social Security, while underscoring ongoing efforts toward reducing pension levels to sustainable points and advancing gender equality in pension outcomes, according to the agency’s assessment.
“Pension spending in Spain is projected to rise rapidly through 2049. The rise in maximum contribution bases, together with only modest revaluation of the top pensions, will help finance the growing costs. Yet the extra revenue will cover only part of the rise, mainly because pensions are linked to CPI adjustments.” The OECD notes that re-indexation to the CPI will push public expenditure higher. The projection suggests a budget deficit that could reach about 1.1 percent of GDP by 2050, the report indicates, based on current trajectories.
It’s now official: Pensions will increase by 3.8% in 2024
The OECD corroborates Airef’s projections, which suggested that the pension reform would improve benefit adequacy while raising questions about long-term sustainability. The report also emphasizes that it did not attempt to evaluate the public system’s overall sustainability in total across all programs and schemes.
Spain currently allocates roughly 12.3 percent of GDP to pensions, with an expectation to peak around 13.2 percent in 2045, according to OECD estimates. By contrast, Germany is projected to rise from 10.3 percent to about 12.1 percent in the same period, while Italy is forecast to move from 15.4 percent to 17.3 percent in 2045, reflecting divergent paths in European pension policies, as noted by the OECD.
During the last legislative term, the government introduced several mechanisms aimed at increasing contributions, with some measures phased in over the coming years. Intergenerational equity mechanisms are already in place. A temporary increase in social contributions of about 0.6 percentage points is planned, with workers and employers sharing the cost more heavily at the outset, the OECD reports as part of the reform package.
From 2025, a new “solidarity rate” will apply to companies with highly paid workers, collecting on portions of salaries not currently contributing. This will be complemented by a gradual rise in the maximum contribution bases above the cap on pensions, as outlined in the reform strategy.
Demographic problem
Spain faces a demographic challenge relative to much of Europe. Birth rate projections indicate it will be difficult to replace the baby-boom generation. In 1962, the average number of children per woman was 2.78; by 1982 it fell to 1.93; in 2002 it dropped to 1.24 and has since edged up to around 1.29, aided by migration flows that influence the total. The OECD average stands at about 1.59 children per woman, and forecasts show this gap persisting for decades. Projections place Spain at roughly 1.4 children per woman in 2042, with the OECD average closer to 1.6, as cited by the agency.
Gradual increase in spending
Even with spending lower than some neighbors, Spain remains among the OECD countries offering strong guarantees to retirees. Pension expenditure hovers around 12.3 percent of GDP, and the payout rate for the public system sits above the OECD average of 8.9 percent and the EU average of 8.5 percent. While several peers allocate more—Italy around 15.4 percent, France about 14.8 percent, or Portugal around 12.7 percent—Spain remains among the more generous in terms of replacement rates, according to OECD data shared in the report.
The replacement rate, which measures pension income as a share of pre-retirement earnings, is projected at about 80.4 percent in Spain, well above the OECD average of 50.7 percent. Among OECD members, Greece offers a slightly higher replacement rate at roughly 80.8 percent, while France (57.6 percent), Germany (43.9 percent), the United Kingdom (41.9 percent), and the United States (39.1 percent) trail behind, as highlighted by the OECD’s comparative figures.
Related posts:
SEO rewrite by an expert analyst Rewriting pensions data for clarity and context in North America November pension and SGK allocations update October pension allocations and averages in the contributory system Spain and Europe Face Slower Growth Amid War Costs: OECD Outlook 2023 Pension Trends in Spain: March Averages and Distribution Rewriting Spain’s Pension Reform: A 3rd-Party View on Sustainability and Work Pension Trends in September: Key Insights on Social Security Benefits in North America Pension System Highlights and Trends in June Spain’s August inflation: energy declines, food pressures, and cross‑country comparisons Pensions in October: Expenditures, Averages, and Beneficiaries Rewrite of Pension and Maternity Supplements Text