But how did things get this bad?
By most measures sun-blessed Spain is an idyllic place to grow old in. Life expectancy is among the highest in the world, and the national pension fund’s payout ratio (pension as percent of final salary) is the second highest in Europe after Greece. But if current trends are any indication, that may soon be about to change.
The country’s Social Security Reserve Fund, which was meant to serve as a nationwide nest egg to guarantee future pension payouts, given Spain’s burgeoning ranks of pensioners, has been bled virtually dry by the government. This started ever so quietly in 2012 when the government began withdrawing cash from the fund. Some of it was used to fill part of the government’s own fiscal gaps while billions more were tapped to cover the Social Security system’s growing deficits. As a result the pension pot has shrunk from over 66 billion in 2011 to just 15 billion in 2016.
To avoid wiping out the fund altogether this year, the Spanish government extended a 10.1 billion interest-free loan to Spain’s social security system, which enabled it to pay out the two extra pension payments due in June and December. That way, only 7-7.5 billion will be tapped from Spain’s public pension nest egg. Emptying the pot altogether this year would have been politically unpalatable, says El Pas. Instead, it will be emptied next year as the social security system racks up yet another massive annual shortfall.
This post was published at Wolf Street on Nov 18, 2017.