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Social Security to Post Deficit in 2015 Without Pension Reform
International Herald Tribune
Spain
July 22, 2005
Government to overhaul benefits for widows, early retirement
Labor and Social Affairs Minister Jesús Caldera on Thursday warned that pension reforms were needed within the next 10 years to prevent the Social Security system from running a deficit.
However, in a meeting yesterday with representatives from the country's leading labor unions, CC OO and UGT, and the biggest employers' group CEOE-CEPYME, Caldera took pains not to alarm the public, emphasizing the "total solidity" of the country's state pension system.
According to a report on the future of state pensions to be presented to the EU, the Social Security system is projected to return a shortfall for the first time of €625 million in 2015, equivalent to 0.04 percent of the country's gross domestic product. By that year, outlays of the Social Security system are projected to amount to €138.6 billion, of which state pension payments will account for €118.8 billion as Spain suffers the impact of an ageing population.
The Social Security system has consistently been in surplus. It is estimated to be in the black to the tune of 0.7 percent of GDP this year, which will help the government to balance its books and even return a public sector surplus.
The system is expected to continue to generate a surplus all the way through to 2015, in part due to contributions from a massive influx of immigrant workers. Last month, Caldera estimated that a legalization process for close to 700,000 foreign workers under a government amnesty program could add €1.5 billion to the Social Security system next year.
The reforms Caldera mentioned leave the retirement age at 65, despite calls for this to be extended to 70. There was also no mention of any changes to the system for calculating contributory pension benefits. To be entitled to the full state pension, workers in Spain currently have to contribute to the Social Security system for 35 years. The actual amount of the full pension depends on the level of contributions in the last 15 years of working life. Those who pay at the highest level, and also meet the 35-year requirement, receive a state pension of over €2,000, which is generous compared to other European countries.
Widow's pension
The reforms he did mention apply to areas such pensions for widows, as well as the level of benefits for those taking voluntary early retirement. Caldera said current levels of benefits for widows were set when it was socially unacceptable for married women to work and when divorce did not exist. Pensions, therefore, would have to be adjusted to take into account cases in which a widow has other sources of income.
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