Spanish government takes €1 bn more from pension reserve fund
With this decision, the pension fund will have lost €9.7 billion in a month
BarcelonaSpain’s Social Security pension reserve fund has been raided a second time this month. This time, one billion euros has been withdrawn to pay income tax rebates to pensioners. With this action, coupled with the withdrawal just a few weeks ago —to meet the summer extra pay—, Spain’s Pension Reserve Fund has lost €9.7 billion; and the bleeding is far from staunched.
According to yesterday’s report by Spain’s Ministry of Employment, little more than €24.2 billion remains in the Social Security savings fund, a kitty created to meet financing needs. This figure is a far cry from the €70 billion that it held in 2012.
In recent years, ever since the Social Security accounts slipped into the red, —rising unemployment meant lower collections while the number of people on benefit continued to increase-- the Spanish government has dipped into these reserve savings at least twice a year to pay out benefits. This year it has done so three times. Until April, the Social Security system still enjoyed a surplus of 0.15%, but a year ago it was twice this figure, at 0.29%.
Even though employment is recovering in Spain, covering pensions is becoming increasingly more difficult simply because payouts are growing at virtually twice the rate. Figures through to May show that the number of contributors in Spain has climbed by 2.43%, while the amount used for retirement pensions increased by 4% year over year. Retirement pensions account for the bulk of expenses in the Social Security system, whose overall payments have risen by a further 3% since last year.
Savings for only two years
The €24.2017 billion that remains in the Pension Reserve Fund guarantees savings for only two years. If the Spanish government continues to withdraw funds at the current rate, there will be enough cash to cover the extra pay this coming Christmas and the two further pays next year.
Finding a solution to guarantee the sustainability of the Spanish pension system will be at the top of the to-do list of the new government in Madrid. Luis de Guindos, acting Minister of Economy, sounded a warning just a few weeks ago: pensions are at risk, unless greater economic growth can be achieved.
In addition to this, however, there is also a plan on the horizon for a regulatory change to assure the system’s future. The law has opened the door to allow paying some pensions --of a non-contributory type-- with State funds, and some are being paid in this way.
The Independent Authority for Fiscal Responsibility (AIREF, in Spanish) has already warned the Spanish government, but more decisive steps are needed to make changes to the system.
The emptying of the kitty has been progressive. In 2012, the administration helped itself to €3.8 billion, while the following year it used €9.2 billion in reserves. In 2014 this rose to €12.1 billion, and last year it took €9.2 billion more.
This drop in savings poses an additional problem for ordinary State revenue; because the revenue going into the fund has dropped dramatically, the kitty can no longer function as a kind of investment fund that purchases Spanish debt, for example.
In the first quarter of this year, Social Security income received for this fund fell by 30% when compared to the same period in 2015. This decline has accelerated to the point of doubling the loss of 15% of interest that the system suffered last year. This takes a toll on Spain's patrimonial revenues, which have declined by 50% over what Social Security had when the PP came to power at the end of 2011.
