Spain faces pension and social welfare sustainability challenges

Spain faces significant challenges regarding the long-term sustainability of its pension and social welfare systems due to demographic aging. FEDEA has highlighted methodological limitations in the models currently used by administrations to project pension spending, noting that while institutions like the Social Security, AIReF, and the Ministry of Economy use various tools to study future income and expenses, improvements are needed to ensure accuracy.

AIReF warns that while Spain currently complies with spending rules, the sustainability of the system is not guaranteed. Projections indicate that spending on long-term care could double by 2050, rising from 0.8% of GDP in 2025 to 1.6% of GDP. This increase, driven by increased longevity and expanded coverage, will place intense pressure on public accounts alongside pension spending, which is expected to rise from 13% to 16.4% of GDP in the same period.

Additionally, legislative changes are impacting early retirement. A transition period is underway to increase penalties for those retiring early, specifically targeting high-contribution workers through 'disposición transitoria 34'. This measure aims to prevent high-earners from retiring early without significant financial impact, with penalties increasing progressively through 2033.