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Topic 9. The Pensions System in Spain
Outline:
• The Social Security system (9.1)
• Objectives.
• Instruments.
• Pensions systems (9.2)
• “Pay-as-you-go” or repartition system
• Bismark system.
• Beveridge system
• Capitalisation system.
• The Social Security system in Spain (9.3)
• Evolution
• Revenues and expenditures
• The pensions system in Spain
• Reform and future prospects of the public pensions system (9.4)
• Theoretical underpinnings.
• Hypothetical vs. feasible reforms.
9.3.1. Evolution (I)
Origins :
1. Commitee for Social Reform 1883
2. Labour Accidents Act 1900, First social insurance
3. National Social Welfare Institute 1908 (Instituto Nacional de Previsión)
4. First obligatory old-age insurance 1921 (Obligatory Workers’ Retirement
plan )
5. From social insurances, Spain moves to labour mutual benefit funds (“mutualidades
laborales”) whose objective was to complement social insurances.
6. Social Security Bases Act 1963
(Aiming at setting up a single management unity obtaining greater administrative
rationality)
7. General Social Security Act 1966
1st January 1967 : The Spanish Social Security system starts functioning
SOCIAL SECURITY SYSTEM IN 1967
Financial problems due to:
Insufficient payroll taxes (not connected to wages)
Non-increase of pensions
Excess of bodies (social insurances, and mutual funds or institutes)
9.3.1. Evolution (III)
Consolidation and improvement of the system :
10. First main reform in the pensions system since 1978: Royal Decree 530/
Law for Urgent Measures for the Rationalisation of the Structure and the
Protective Action of the Social Security System:
• Contribution years augmented from 10 to 15 years.
• Earnings record on which the pension is computed increase from 2 to 8 years.
Between 1980 and 1995, expoenditures on public contributory pensions increases from
5,6% to 8,4% of GDP.
The ratio between affiliates and pensioners deteriorates and falls from 2.7 to 2.1.
11. Non-contributory pensions are stablished in 1990
12. January 1, 1991: Obligations and responsibilities of INSERSO regarding the
management of the complementary services of Social Security benefits are
transferred to the Governments of the Autonomous Communities of Catalunya,
Andalucia, Galicia, Valencia, Canary Islands, Basque Country and Navarre.
9.3.1. Evolution (IV)
The “ Todelo Pact” in 1995
13. New reform in the pensions system:
Global evaluation of the reforms needed by the social security system to ensure its
sustainability
Pensions will not be used for electoral reasons
Pensions will increase according to the CPI index
New possibility of part-time retirement
Contributory and non-contributory areas are clearly defined and financially
disaggregated
Creation of a social security reserve fund in case of surplus in the contributory
area.
Positive evaluation from a political perspective, but less successful in terms of the
implementation of concrete measures.
Recommendations from the TOLEDO PACT progressively implemented subsequently
9.3.1. Evolution (VII)
Social security contributions as % of GDP :
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
9.3.1. Evolution (VIII)
Social security benefits as % of GDP :
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
18,0%
1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
9.3.2. Revenues and expenditures (II)
Current transfers ( % of total social security revenues) :
29,3% 29,3%
31,1% 31,6%^ 31,2%
9,6%
5,2% 5,2% 5,1% 5,1% 5,3%^ 5,7%
7,1% (^) 7,0% (^) 6,6% 7,4%
29,3%
29,9%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (P)
9.3.2. Revenues and expenditures (III)
Social benefits as % of GDP :
9,8% (^) 9,7% 9,2% 9,3%^ 9,1% 9,1% 9,0% 9,0%^ 8,9% (^) 8,8% 8,9% 9,2%
10,0%
10,5% 10,7%
9,6% 9,5%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
9.3.3. The pensions system in Spain (I)
The pensions system in Spain consists of :
“PAY-AS-YOU-GO” ELEMENTS
1. Contributory pensions
Created with the Social Security
Bismarkian element of the Spanish pensions system: proportional to wages subject
to a series of requirements
Main source, by far, of retirement income
There are different type of pensions:
• Retirement pensions
• Widow’s pensions
• Orphan’s pensions
• Family benefits (or pensions)
• Disability benefits (or pensions)
2. Non-contributory pensions
Created in 1990 (Retirement pensions + disability pensions)
Beveridge model element that adds to the Spanish pensions system:
these pensions are conceived as a universal subsidy for those not meeting the
contributory requirements
9.3.3. The pensions system in Spain (II)
CAPITALISATION ELEMENTS
3. Reserve fund of the Social Security
Created in 2000
Public fund
4. Private pensions
1987: Law of Pension Plans and Funds
Individual pensions: Workers may freely deposit their savings in pension plans so
that they complement the pensions they receive from the public system.
Collective pensions: Collective and firms’ pension schemes (Ex: UAB)
9.3.3. The pensions system in Spain (IV)
9.3.3. The pensions system in Spain (V)
9.3.3. The pensions system in Spain (VII)
Dependency ratio (affiliates/ contributory pensioners) :
This ratio may also be computed by having pensions rather than pensioners, or by adding the
number of people receiving unemployment benefits
2,3 2,
2,
2,5 2,5 2,
2,
2,
2,1 2,
2
2
2
2
2
2
3
3
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Sep)
9.3.3. The pensions system in Spain (VIII)
Balance
Social security
contributions Contributory pensions
Social security revenues and expenditures
Social security contributions vs. contributory pensions (millions of euros):
