The causes behind Spain’s looming pensions crisis

Already mired in a five-year recession that shows no clear signs of abating, Spain now faces the added challenges of a negative birth rate and declining population. For the first time since the Civil War, deaths are set to outnumber births within the next three years, according to a new report from the National Statistics Institute (INE).

The figures show that in 2013, 545,980 non-nationals left the electoral register, almost 10 percent of the total number of foreigners resident in Spain. This was partly due to immigrants taking up Spanish citizenship, but mainly because they are returning to their countries of origin.

Spain’s population now stands at 46.7 million, but if current trends continue this could fall to below 42 million by 2051, according to the INE.

Spain is failing to generate new jobs, while government tax revenues and Social Security contributions are falling, factors that will make it harder to support an ageing population.

The country’s problems in part come from the way women have been incorporated into the labor market. Experts say that a lack of policies to allow women to manage a career and bring up children has contributed to the falling birth rate. It is a problem Spain has been facing for the last two decades, but until recently it had been masked by the sharp increase in immigration over the same period. Now, as growing numbers of those immigrants return home, the true scale of the country’s predicament has been revealed.

What difference does a million less make? The demographic makeup is the key”

Not that a shrinking population in itself is a bad thing, says Margarita Delgado, a researcher at the Spanish National Research Council (CSIC). “What difference does a million more or a million less make? What really matters is a country’s demographic makeup,” she says. In other words, having a sufficient number of people to pay the pensions bill.

The demographers say that with full employment, Spain would be more than able to support its retirees. The later generations of Spain’s baby boom, which took place between 1958 and 1977, should be working. “Spain has never had such a well-trained and educated work force,” says Antonio Abellán, a specialist in ageing at the CSIC. But the crisis has severely reduced that workforce’s ability to generate wealth that can be fed into the welfare state.

Which is why Andreu Domingo, deputy director of the Demography Studies Center at Barcelona Autonomà University, says it makes no sense to blame an ageing population for the spending cuts. “The main risks, such as they are, to the pension and healthcare system are not due to people getting older, but to a stagnating economy, reduced bank lending, and employment policies,” he says.

The most vulnerable group are those currently in their late forties,” says an expert

Spain’s demographics will begin to change sharply from 2030 onwards, when the baby boomers will begin to retire en masse, leaving a smaller workforce to foot their pension bill and healthcare. “The most vulnerable group are those currently in their late forties,” says Domingo. Margarita Delgado warns that politicians will have to take measures to counter growing inequality between the generations in coming years.

From 2050, as the baby boomer generation dies out, the shape of Spain’s demographics will change from a pyramid into a tree with a thick trunk and its top lopped off, within which there will be little difference in the number of inhabitants within each age group.

These long-term predictions are based on current demographic trends that could well change in the coming years, particularly due to migration, which is particularly volatile, and very much linked to the way the economy develops.

“Whatever happens,” says Domingo, “we will have to get used to population decline, because the only way the population will increase is through immigration; that said, the idea that immigrants are an infinite source of employment will disappear. In fact, we can already see competition to attract the best-educated and trained people around the world,” he adds.

Young people should start working earlier, and continue their education and training throughout their adult lives

The complexity of the situation makes it difficult for governments to know which measures to take, says Abellán, who believes that one outcome will be having to accept our working lives being extended.

Abellán sees a future in which the traditional structure of our lives will change: instead of spending our youth studying, our adult lives working, and our old age playing golf, he believes young people should start working earlier, and continue their education and training throughout their adult lives. “But that is not something that is going to happen any time soon in Spain, with a 50-percent youth unemployment rate,” he admits. “But this is how the EU sees the future: the better educated and trained people are, the better able they will be to create wealth, which means that a smaller workforce will be able to support a large number of non-active people,” he says.

The retirement age has already been put back, and as Ángel de la Fuente, head of the FEDEA think tank, points out, pension reform is imminent, which is causing concern among people in their fifties. Recent surveys show that in Spain, 68 percent of people of working age are worried about their standard of living during their retirement.