Retired Spaniards earn more than the national average

The income of retired Spaniards who are between 66 and 75 is six percent higher than the national average, according to the Organization for Economic Cooperation and Development (OECD).

Among the OECD’s 35 members states, this age group earns seven percent less after retirement. But in Spain the opposite happens. It is an atypical case surpassed only by France, where pensioners ages 66 through 75 make 10 percent more than the national average.

Yet in 2006, this age group’s income was 19% below average. In this time, their relative income has advanced 25 points, reflecting a combination of wage devaluation, high jobless rates, guaranteed pensions and better lifetime contributions to Social Security.

The rise in family income is mostly due to pensions Diego Barceló

In Spain, wages are around €6,500 lower than the OECD average. This partly explains the higher income enjoyed by retired Spaniards. The figure also fails to take into account individual situations: retirement checks range from €550 to €2,500. According to the OECD, 70% of pensioners’ income comes from this source, and the rest from other sources.

In Spain, wages are around €6,500 lower than the OECD average

Additionally, if all retired Spaniards are taken into account, not just those between 66 and 75 years of age, then their average income falls to one percent under the national average. This is partly because those 75 and over are often women with a lower lifetime contribution to the welfare system who live on widow pensions.

“While wage earnings as a share of GDP retreated 3.3% between 2008 and 2017, earnings from pensions and safety net programs grew 34.9%. That is to say, the rise in family income is mostly due to pensions,” explains Diego Barceló, an economist. “Right now there are 1.1 million more pensioners than in 2008.”

Pensions have become a tool to make up for low income

The Spanish government has always said that pensions helped many households make it through the economic crisis, and a report by BBVA Research supports this claim: consumption has not fallen as much as income thanks to money transfers from relatives earning a social program check. In the absence of a strong poverty alleviation program in Spain, pensions have become a tool to make up for low income.

Figures from Social Security show that between 2007 and 2017, spending on pension checks rose 53%. Adjusting for inflation, this number is reduced to 34%. At a constant 2017 euro value, the average pension payment has risen from €764 to €920. Meanwhile, employment figures show that the average salary is stagnant and that there are 1.7 million fewer workers taking home a paycheck.

IMF warning

These figures reopen the debate about how safety net programs should work.

“The data is showing two things: on one hand, a strong wage devaluation following the great recession, and on the other, a welfare state that is not generous with the young,” says José Ignacio Conde-Ruiz, who teaches at Complutense University in Madrid.

Late last year, the International Monetary Fund (IMF) warned about the risk of an inter-generation conflict in Spain over the pension system, and recommended not putting an increasingly heavy burden on the young.

In the EU, a worker retires with around 50% of his or her last salary on average. But in Spain that rate is 81.9%, according to the European Commission.

However, these figures fail to reflect the fact that other countries have poverty alleviation programs that are missing in Spain. Nor does the EU report take into account that Spanish reforms contemplate a freeze on pensions, which will lose purchasing power over the years.

The Spanish system is also generous with contributors: a BBVA report shows that for every euro that is put into the system, the system pays out €1.44

But the next generations will not enjoy such generous conditions.

“The reforms approved in 2011 and 2013 move in the opposite direction: gradually modifying criteria in order to reduce pensions, in real or nominal terms,” says Josep Oliver, a professor at Barcelona’s Autonomous University.

English version by Susana Urra.