This Week's Focus: Can refill the piggy bank (of pensions)?

This Week's Focus: Can refill the piggy bank (of pensions)?

Anchor

The budget of the Social Security in Spain draws revenue from social security contributions of workers and businesses and property income from their investments. Among them is the so-called reserve fund or "piggy bank" of pensions, which was established in 2000.

The Reserve Fund of Social Security is a sovereign wealth fund that aims to meet the needs arising from the contributory Social Security benefits to insufficient income gap between income and expenditure of the Spanish Social Security.

Investment criteria of the Reserve Fund are mostly invest in Spanish Public Debt (in 2015, 100% of the fund was invested in debt of the Spanish State) foreign public debt up to 55%. However, 31/12/2015 the entire fund assets invested in Spanish debt was 100%. The fund's performance in 2015 was only 1%.

A hole in the "background"

The fund is endowed with contributions from the budget surpluses of the Managing Entities and Common Services of the Social Security. Given the economic situation, since 2008 only in 2010 received a slight contribution. Another source of contributions, although much less important, are the surplus management by Mutual of temporary disability benefit. Annually, it has been fluctuating between 103 million euros in 2015 and 227 in 2012.

Since 2012, the fund regulations until December 2015 have meant a decrease of more than 44,000 million euros. The causes of these provisions are to be found mainly in increasing both the number of pensioners.

However, in the situation of economic weakness post 2008 crisis, and to measures to promote the hiring reduction and bonus social enterprises quotes, insufficient ordinary revenue to meet the payment of benefits is another causes the use of reserve funds.

Unfortunately, both demographic and economic growth prospects do not allow to be overly optimistic about the ability to fill the reserve fund short term. Spain will have more than 34% of the population over 65 years in 2050, according to projections made by the Social Security and the own population of working age will be reduced by more than 10 million people. 

Although the number of members of Social Security has increased significantly in recent years, the effective lowering of wages, with its impact on lower contribution per member and the multitude of subsidized regimes unlisted effectively maintain security budget social deficit.

Fates expectations

The little room for maneuver granting scarce funds held in the "piggy bank" predict that one of the priorities of the next government of Spain is a new reform of the pension system and a general increase of taxes and social contributions.