Fedea warns against the ‘election file’ of Escrivá’s pension reform and calls for limiting his generosity

Escrivá’s pension reform does not convince the academic world. Since the advent of the Brussels-bound regulation, it has received a barrage of criticism, mainly for not ensuring the sustainability of the system. The Foundation for Applied Economics Studies (Fedea) proposed on Monday to adapt the reform to reduce the “largeness” of the system without affecting its political viability. The study centre, which does not question the appropriateness or nature of the pension system set up in the 1960s and 1970s, complains that “many reforms have been undertaken, which, while pretending to reduce generosity, have not really solved the problem”.

The authority is very clear when it refers to the spending expectations that were opened after the reforms carried out in 2021 and 2022. And it confirms: “The former is trying to contain spending on pensions by restricting early retirement options, which we believe is the wrong strategy. The second, with a clear electoral profile, is no longer trying to contain spending, however Income increase to cover the increased expenses.

Fedea, one of the institutes of economic analysis consulted by the European Commission, the International Monetary Fund or the Organization for Economic Co-operation and Development to form an opinion on the progress of the Spanish economy, complains that they “have not addressed the compatibility between the labor market and the pension system, in a context where the balance between Young and old It has become more and more in favor of the latter. For this reason, this institute proposes that, given that the reform already validated by the Cortes is based on expansion of spending, and is not accompanied by an equivalent increase in income, one option would be to propose adjustments in real terms to the current composition of the reform.

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purchasing power

“For the amendment to be applicable, it is essential that existing pensions do not lose purchasing power and that new pensions continue to increase in real terms, although they are less than wages,” the foundation suggested. Thus, the ‘think tank’ ensures that a measure which would reduce the generosity of the pension system without prejudice to this requirement will consist of restricting the transfer of real wage growth into future pensions.

In practice, this objective can be achieved by introducing a corrective factor based on the growth of real wages and updating the contribution bases for calculating the regulatory base for new pensions. They explained that “this correction would contribute to the gradual reduction of the future generosity of our pension system and partially solve the fiscal deficit that has arisen with the current reform.”

In his analysis, he also looks at the relationship between the labor market and pensions and states that “there is a lot of room for improvement” given Increased longevity and the level of education of the workers. He proposes extending active retirement to all ages – with restrictions before and without restrictions after natural age – and improving the treatment of delayed retirement, so that it is actuarially fairer, because the benefit to society does not come exclusively from improvement. from social security accounts, but also from increased employment of the elderly which, since it does not compete with younger workers, results in higher employment and GDP.

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