Pension spending will reach a record 200 billion euros in 2024

State spending on public pensions will reach a historical record of 200,000 million euros next year, due to the increase in the number of pensioners receiving a public pension, it will be noted that contributors who register to collect a pension have the right to a higher amount -because his salary has been higher- and, above all, because all pensions in force will be revalued at least according to the CPI.

Social Security spends 12,017 million euros monthly in the payment of contributory pensions -retirement, permanent disability, widowhood, orphanhood and in favor of relatives-, as reported yesterday by the Ministry with data from July, to which is added the disbursement in passive class pensions (for public officials who are included in this specific protection regime) and in non-contributory pensions (those that are paid to those who have not contributed enough to the system).

For this year, the Government had budgeted in the 2023 accounts a total amount of 190,600 million euros for pensions: 167,000 million for contributory pensions, 20,400 million for passive class pensions and 3,000 million for non-contributory pensions.

This expense will increase next year and is expected to reach 200,000 million euros.. The aging of the population and the fact that the baby boom generation is already retiring, will cause an increase in the number of pensioners: the more people receive the pension, the greater the total state spending on pensions.

In addition, it is necessary to take into account the impact that the replacement rate generates in the Budget, that is, the percentage that the pension represents over the last salary and that, by remaining constant, and given that salaries are increasingly higher, generates an increase in the benefit received. Right now, while the average retirement pension stands at 1,375 euros, pensioners who are registering in the system and beginning their retirement receive an average of 1,487 euros, 112 euros more.

Finally, the revaluation of pensions with the CPI will make the bill more expensive. The reform of the pensions of the minister José Luis Escrivá left protected by law that all pensions would rise at least in Spain the equivalent of the average of the interannual inflation registered in the twelve months prior to December of the previous year. For 2024, the increase will be calculated by taking the inflation average from December 2022 to November 2023 (both included).

According to Funcas forecasts, interannual inflation, which in June reached the minimum of 1.9%, will rise again in the second half of the year, with records of 2.2% in July, 2.5% in August; 3.5% in September; 4.1% in October and 4.7% in November. With the evolution of the first half of the year and this forecast, the average year-on-year inflation from December 2022 (when it stood at 5.7%) to November 2023 shows an expected increase in pensions for 2024 of around at 3.9%.

Contributory pensions and those of passive classes will rise by that amount, with which the 167,000 million that are allocated to the former will become 173,500 million and the 20,400 of the latter will become 21,200 million. The minimum and non-contributory taxes have risen in recent years twice as much as the rest (in 2023 they have increased by 15%, for example), hence it could be expected that the 3,000 million allocated to this item will exceed the 3,200 million.

In total, the sum of pension spending would be around 198,000 million euros, without taking into account the substitution effect or the increase in the number of pensioners, which will leave the final account around 200,000 million euros, as confirmed to EL WORLD Ángel de la Fuente, associate professor at the Autonomous University of Barcelona and director of Fedea, and Enrique Devesa, tenured professor of Financial and Actuarial Economics at the University of Valencia and associate researcher at the Valencian Institute of Economic Research (IVIE).

This last expert calculates that, in addition to the revaluation, pension spending will grow by 2.3% due to the increase in the number of paid pensions, with which he estimates that the total budget could reach 202.7 billion euros.

In order to face this level of spending, the pension reform has activated different levers (increase in social contributions, the introduction of an extraordinary quota for all workers called the Intergenerational Equity Mechanism, the reform of the self-employed regime and different incentives to extend working life and delay retirement). Even so, in 2025, the country will have to assess whether these measures have been sufficient or whether, on the contrary, additional measures are necessary to balance the system's accounts.