The Spanish pension system is in great question. The social security deficit has called its sustainability into question To make it viable, the government is working to finalize the reform of the future pension system.
In this scenario, results appear Global Pension Index 2020, compiled by Mercer CFA Institute Global Pension Index-MCGPI, any places Spain ranked 22nd out of 39 countries analyzed s In the last places of the European Union’s ranking, just over Poland, Austria and Italy.
The report defines a global ranking using more than 50 indicators to assign a value to each of the three sub-indices into which the overall indicator is divided: sufficiency, financial sustainability and integrity, And in the area of sustainability specifically, Spain is the limp.
“Spain’s pension system requires a comprehensive and urgent review,” he says. Miguel Angel Menendez, Director of the Wealth District at Mercer Spain.
This review aims to “increase employees’ coverage of occupational retirement plans through automatic commitment, similar to the UK system, and increase the contribution of the elderly workforce,” says the expert.
Although Spain is very far from The first places in the ranking, occupied by the Netherlands and Denmark, On The year 2020 rose to two places thanks to the improvement in the degree of governance, an effect derived from the implementation of the new IORP II regulations on employment pension funds.
Effects of the epidemic
Global pension systems were hit hard last year by the consequences of the pandemic Due to the depreciation of the pension fund assets, to the decline in interest rates, to the decline in contributions to retirement plans due to the increase in unemployment, the escalation of public debt resulting from aid, and the early rescue of employment plans to obtain liquidity.
The report expects that this punishment will continue in the long term. Attributing her to that Many governments will reduce the replacement rate – The percentage representing the retirement pension over the last salary before it – to alleviate the deficit.
What is more, Employers will reduce their investment in business plans to reduce labor costsAs is already happening in Spain, citizens will increase the expected bailouts of their pension plans to get cash. All of this, they noted from Mercer, “requires an urgent easing of pension systems.”
Perverse measures for final savings
To mitigate the impact of the pandemic on citizens, governments have taken initiatives that punish the bottom line savings.
in some countries, Early access to retirement plansIt also happened in Spain when the government allowed for a while to bail out pension plans savings for erte-affected workers and for entrepreneurs and self-employed who have suffered from the shutdown caused by the coronavirus.
Other governments have Reducing the level of mandatory contribution rates To improve the liquidity position of families, which will harm future pensions.
Changes in corporate governance
Pension fund managers were also forced to make changes, such as Review asset allocation and investment strategies.
Although no drastic decisions were made, they agreed on two aspects: Executing greater diversification through assets with less volatility, such as infrastructure investment, and greater fluidity.
Among the common measures and goals that a good retirement system should adopt, in the opinion of the MCGPI 2020 report, it should be noted that there is a replacement rate of at least 70 percent, that 80 percent of the workforce benefits from the employment plan and that the invested assets exceed one hundred percent of the gross domestic product.
It is also taken into consideration that the labor force participation rate of the population aged 55-64 is at least 80% and that they have a solid regulatory and governance system.
In the opinion of David Knox, study authorIt is imperative that governments consider the strengths and weaknesses of their systems to ensure better outcomes for retirees.