Eduard Berenguer article today in La Vanguardia Sunday May 3 [via: Comfia ] :
2025 contributions collected by the system will insufficient to fund retirees
04/05/2009 - The intervention of the governor of the Bank of Spain to the committee of the Toledo Pact, which announced the bankruptcy the Social Security system in 2025, has caused a huge alarm. From their statements there have been numerous interventions trying to calm the population. In short, it is agreed that by the date specified by the governor (year, year less) contributions collected by the system will be insufficient to finance the cost of future pensions, but guaranteed they will continue because of the additional funding will bring the state from the interest generated by the current reserve fund and from general taxes collected. In this sense, Spain will only follow the model of other countries in which some time ago that the contributions are not sufficient to cover pension expenditure.
we call the failure of the system is not simply a consequence of the Social Security model we have and that is based on the known distribution of the contributions collected among pensioners, conceived as a system Intergenerational solidarity in which the children (contributors) support to their parents (retired).
This system breaks when changes in the population pyramid caused by the decline in younger cohorts because of the reduction in birth rates and lengthening the life, that determine the aging of the population or when productivity is low, as this prevents further growth of contributions.
Unlike other countries, in Spain We have succeeded in delaying the process because of the massive incorporation of women in the younger generation into the labor market and the arrival of many immigrants. But to the extent that the contributors of today are the pensioners of the future that does not stop to be addressed future challenges in good time and that must examine what reforms to carry out short and long term.
In the short term it makes sense to concentrate efforts to secure improvements in the amount of minimum pensions and widow's pension, if only because pensions are a key element that many people need not to fall into a state of poverty. But while there are other aspects to consider. Two proposals seem to be taken into consideration. First, address the situation of those who have gone through some kind of record of employment regulation and have seen their pension decreased because the amount is established based on your work history for the past fifteen years. These pensioners should be offered the chance to choose their best fifteen years when calculating their pension.
Second, our system being sharing, should be taken into account the number of children who have had the potential pensioners. There is no doubt that families have more children contribute to the stability of the system that have had fewer children. French law, for example reflects this fact, and pensioners who have had three or more children receive a pension increased by 10%.
For long-term reforms, the options are more open. There are countries like the UK or Germany who have chosen to gradually increase the retirement age to 67 years. Others, like France or the U.S., their pensions calculated on the entire career. The most extreme example is the case in Sweden, where since the 1999 reform the pension is calculated on the capitalization of all fees paid so that at the time to retire this capital gives rise to an annuity calculated on hope of life left to the receiver. Other countries such as Denmark, pensions down into two parts: a guaranteed minimum for all pensioners and other career-dependent, where the secured party is charged from age 67.
It can be seen the menu of possible reforms is mixed. For what should we decide? The answer is for giving it to the social partners within the Toledo Pact, attempting to avoid the politicization of the design of our pensions. In any case the design will be conditioned by the burden on future pensions in terms of GDP and the ability of each system to collect taxes. But a summary of the various models is always an interesting alternative. Here, this would involve combining and extending working life to a greater number of career years when calculating the pension.
The latter is the most difficult. But some of us remember the angry reaction that took Nicolás Redondo in the first term of government of Felipe Gonzalez when he proposed to amend the calculation of pensions. Then it came to pass in the last two years of wages to eight years to calculate the base salary. We are now at 15.
Eduard Berenguer, Professor of Economic Theory UB.
published in malvasíaBlog 
