Pushing for a pension system reform, Spain proposes incentives for late retirement

In a push for "urgent" reform of the pension system, the Spanish government has proposed a series of changes to incentivize people to continue working past the retirement age, as well as to make early retirements less attractive.

Spain’s minister for Inclusion, Social Security, and Migrations, José Luís Escrivà, stressed on Wednesday the "need" to reach a political agreement with a majority of parties to reform the pension (or social security) system—a major challenge facing the left-wing government formed by the Socialists and anti-austerity Unidas Podemos. 

The coronavirus pandemic and the subsequent economic slowdown has dealt a hard blow to Spain, which surpassed half a million confirmed Covid-19 cases this week, raising concerns over the viability of a pension system already under stress for purely demographic reasons.

How does the pension system work

Spain has a public pension system consisting of a single, earnings-related benefit, with a means-tested minimum income, funded through compulsory contributions by active workers.

Upon retirement—currently at 65 years but progressively increasing until 67 by 2027—the worker accesses a life-long monthly pension, the amount of which depends on the base amounts for which they have paid social security during the last few years of their working life, the total number of years they have paid social security for, and the type of retirement they are accessing.

The government spends around 11% of GDP on pensions, above the global OECD average of 8%. While private pension plans are also available, the retirement system is overwhelmingly public. 

With Spain’s life expectancy already among the world’s highest at 83, experts suggest it could top the charts by 2040 with an 87.4 average dying age.