Brussels questions the Government's figures to guarantee pensions: it expects less growth, productivity and employment

The EU disagrees considerably with the economic and demographic forecasts on which the Government has built the pension reform. European Commission experts believe that GDP, productivity or employment – fundamental factors to guarantee the future sustainability of the system – will grow less than what Social Security expects.

This has been expressed by Commission officials in the first preview of the Aging Report for 2024, the key EU document on public pensions released last Thursday.. In this report, Brussels reflects its macroeconomic and population growth expectations in the medium and long term in the Member States. Also included are spending and income forecasts for the pension system, an estimate that will be known in spring 2024, but which will be key to knowing if the Government has to introduce any adjustments to the reform.

In general terms, Brussels' calculations are more pessimistic than those presented exactly a month ago by Social Security. The department chaired by José Luis Escrivá believes that the Spanish economy will grow at a rate of 2% annually between 2023 and 2050, while Commission officials lower that expectation to 1.2%, a figure more in line with 1. 12% managed by the independent tax authority (Airef).

This lower economic growth would be sustained by an increase in worker productivity that is also lower than the Government foresees.. The Executive expects productivity to grow on average by 1.5% each year between 2023 and 2050. For its part, the Commission believes that the increase will be smaller, 1.22%. The Government is confident that the reforms and investment that the European recovery funds will bring will boost productivity and justify this greater increase.

But perhaps the biggest discrepancy between Social Security and Brussels is in employment expectations. While Brussels predicts that the number of employed people will reduce from 20.4 million in 2023 to 19.9 in 2050 (half a million fewer workers), the Executive believes that in 2050 there will be 22 million employees in the labor market (1, 8 million more than in 2023). The number of people with employment is one of the most important variables to guarantee the sustainability of the system. The more workers pay contributions, the smaller the imbalance between pension spending and the income with which they are paid.

Discrepancies about the population

The root of this disparity is in the population expectations that both organizations manage.. The Executive believes that the migratory flows that Spain will receive in the coming years will grow after an initial drop and will reach around 450,000 people annually by the middle of the century. The reasoning of Social Security is that the arrivals of migrants will adapt to the needs of the labor market, which will gradually lose national workers as the baby boom generation, the largest of all population groups, retires.

However, the European Commission does not see it that way and is betting that net arrivals of migrants (excluding departures) will remain around 200,000 throughout the projection horizon (2023-2070).. Consequently, the increase in inhabitants would be 2.2 million between 2023 and 2050 with the EU criteria and 4.6 million with Social Security criteria.

In principle, the disparity in the forecasts between the Government and the Commission should be transferred to spending and income expectations. If the economy grows less than the Executive foresees and there are fewer contributors, in principle the resources of the system would be less than expected. This would affect the sustainability of the system and could force the Government to introduce modifications to the reform to reduce this deficit.

In this section, the Commission's forecasts are particularly important because it depends on whether or not the automatic adjustment mechanism that the Government introduced in the pension reform is activated.. The rule establishes in its second additional provision that if pension spending compensated by income measures deviates from certain thresholds, the Airef will prepare a report to detail where expenses can be cut.. Afterwards, the document will be submitted to social dialogue and the Toledo Pact and, in the event that there is no agreement to reduce spending, social contributions would automatically rise again.

The point is that the reference to calculate whether Spain meets these thresholds is the forecasts of the Aging Report of the European Commission and not those of the Government.. The Executive has indicated on several occasions that with its forecasts the adjustment mechanism would not have to be activated. However, Airef – whose forecast is much more similar to that of Brussels – indicates that the closure clause will expire in 2025.. We will have to wait until spring 2024 to know the final figures from the Commission and have a clearer idea of where the system is at.