Pensions in Spain on the Rise

The number of retirees that receive pensions under  €750 has dropped by 842,000, while those who receive more than  €2,000 a month increase by 46%.

Pensions in Spain have continued to increase in recent years. The pension reform introduced by the PSOE government, led by Pedro Sánchez, has seen an increase in the average pension from  €500-750 euros per month in July 2020 to  €750-1,000 this year. Since June 2020, pensioners who receive more than 2,000 exceed have increased by 46 per cent, while the number of Spaniards who receive lower pensions has significantly reduced.

In 2023, contributory pensions rose 8.5 per cent due to the pension reform law, which takes into account the average interannual CPI from December of the previous year to November of the current year. Money earmarked for contributory pensions this year totals €166 billion, 11.2 per cent higher than in 2022. This increase has considerably raised the sums received by pensioners.

Pensioners receiving higher pensions have risen by 47 per cent, with. more than 1.4 million retirees who receive a pension of €2,000 or above, compared to three years ago. The maximum pension has also been increased to €3,059 per month, and seven per cent of retirees received a pension higher than 3,000 euros in July, the highest pension payment since 2020, since the highest legal amount was €2,683.34 per month.

Growing Breach Between Pensions and Income

The average pension received represents 64.52 per cent of the national average salary received by workers in 2023, a rate that has improved by almost ten points in the last decade. According to the Spanish National Institute of Statistics (INE), workers earn an average of €2,126.63 per month, while the average retirement pension data from March was €1,372.03, according to data.

Therefore, while the average retirement pension has risen by 37.95 per cent since 2014, wages have only grown by 17.7 per cent, reflecting an imbalance in the amount paid out to pensioners and the low rate of salary growth in Spain. While the average pension has increased at an annual rate of 3. 95 per cent since 2014, salaries have only increased at a rate of 2.87 per cent, although this year when the revaluation of pensions came into force has meant an increase of 8.5 per cent compared to 2022.

Retirement pensions are calculated upon the regulatory base rate of the last 25 years worked, although, with the approval of reforms of the public pension system early this year, the way pensions are calculated will change in the coming years.

The Pension Fund Deficit

The maximum pension is currently capped at €3,059.23 per month. This cap, which is not based on wages, explains why the average pension is lower than the average wage. So, while salaries remain frozen, pensions continue to see a rise, creating a deficit in the pension funds for future generations.

This situation is exacerbated by an ageing population, increased life expectancy and youth unemployment, as well as a wave of retirements of those of the baby boomer generation. Pensioners can now receive benefits higher than €22,806 per year, while workers in 2023 earn an average salary of €18,489 a year. This means that new pensioners can earn €4,319 more per year than wage earners, putting the pension system in Spain at risk.

The most serious issue is that the situation will become more and more unbalanced as the number of pensioners grows. The Spanish Economics Institute (IEE) point out that, in 2023, Social Security pensions may end up with a deficit of 0.7 per cent of the country’s GDP. This figure will increase to 0.9 per cent if the income obtained from the new contribution associated with the Intergenerational Equity Mechanism (MEI) is excluded. This deficit, a total of €22 billion, would account for a structural deficit higher than all the Public Administrations. In addition, the report indicates that the pension reform will end up affecting employment with a loss of between 100,000 and 190,000 jobs and a drop in the GDP. This year, the deficit stands at 0.5 per cent.