Spain has third most generous pension compared to salary in Europe
The average pensions in Spain, relative to salaries, are some of the highest in Europe, according to a new report.
New research from Bank of Spain suggests that Spain has the third most generous pension system in Europe, trailing behind only Italy and Greece in terms of pensions relative to average salaries.
But, it warns that the system will be put under significant strain in the coming decades as the baby boomer generation begins to retire.
The Comparative Spending on Pensions in Spain study revealed that Spain exceeds the European average in pension spending as a percentage of GDP, as well as concluding that Spain's average pension in relation to average salary was the third highest of all Eurozone economies.
The investigation, based on the latest data from 2019 concluded that Spain spends 12.7 percent of its GDP on pensions, over 2 percent more than the EU average of 10.4 percent.
READ ALSO - Older and more diverse: What Spain’s population will be like in 50 years
Though Spain was high in terms of pension payouts relative to average salaries, it was still behind a few EU countries when it came to the amount of GDP it spent on them. Greece spent 16.1 percent of its GDP on pensions, Italy 15.9 percent, France 14.7 percent, Austria 14.1 percent, Portugal 13.7 percent and Finland 13.3 percent, compared to Spain's 12.7 percent.
The report also highlighted that Spain's relatively low employment rate combined with its comparatively high amount of pension benefits, both in relation to the average wage and as a proportion of GDP, are factors that drive up Spain's pension spending compared to other countries.
The bank's data suggests "pensions expenses are 34.1 percent higher than Germany in relation to contributions, and 34.1 percent higher than France," which explains why pension payouts are so high relative to the average salary, and why Spain can claim the third most 'generous' pension system in Europe.
Looking ahead
The combination of such generous pensions combined with high unemployment doesn't seem sustainable, however, according to the report.
The Bank of Spain also warned of "remarkable upward pressures" on pension spending in the coming decades and recommended that Spain create more jobs in order to try and alleviate this spending pressure.
By 2050, the bank believes, Spain will "become the country with the second-highest pension expenditure in the European Union, behind only Greece".
As alarming as the report may seem, Spain is slowly approaching a demographic crossroads: the retirement age population is expected to increase by 67 percent by 2050, while those of working age will decrease by 10 percent, according to Spanish outlet El Independiente.
According to new projections released by INE, Spain’s national statistics body, the Spanish population is set to undergo some big demographic changes in the coming years.
Taking a broad view of the statistics, Spanish society is set to get older and made up of more immigrants in the future, with the INE figures predicting that Spain will gain over 4 million (4,236,335) people by 2037, with the population set to reach 51 million. That represents an increase of 8.9 percent.
The Spanish population is also set to get older, with the percentage of the population over 65 years of age predicted to peak in 2050, when almost one in three will be 65 years old or older.
READ ALSO: Spain’s over 65s exceed 20 percent of the population for the first time
At a time when pensions are a big political talking point in Spain, by 2035 around one in four (26 percent) of Spaniards are expected to be 65 or older.
With this stark demographic change on the horizon in coming years, the Bank of Spain report suggested that a way to prepare for and offset this anticipated surge in pension payments would be to boost employment levels: "Slightly more than 40 percent of this increase [in future pension spending] could be compensated if the employment rate rises to the level of Germany," said the bank.
The unemployment rate in Germany is currently 5.5 percent, while in Spain it is 12.4 percent.
With an ageing population and declining birth rates, the Spanish workforce will increasingly rely on inward migration in the coming years. According to INE projections, by 2072 36.5 percent of people resident in Spain, a little over one in three, will have been born in another country.
Retirement age
But how does Spain rank in terms of retirement age?
Of EU member states, Greece, Italy, Luxembourg and Slovenia have the lowest retirement ages at 62. France is 62, but the French government plans to raise it to 64 by 2030.
The EU average stands at 64.3 years for men and 63.5 years for women, and the Spanish average is a fraction above that at 65.
Retirement ages (latest available data)
- Germany - 65 years 7 months
- Austria - 65 for men, 60 for women
- Belgium - 65
- Bulgaria - 64 years and 1 month for men, 61 years and 2 months for women
- Denmark - 65
- Spain - 65
- France - 62 (becoming 64)
- Finland - 63 years and 3 months
- Greece - 67 or 62 (depending on the level of insurance)
- Hungary - 64
- Ireland - 66
- Iceland - 67
- Italy - 67
- Luxembourg - 65
- Norway - 62
- The Netherlands - 66 years and 2 months
- Poland - 65 for men and 60 for women
- Portugal - 66 years and 5 five months
- Sweden - 61
- Switzerland - 65 for men, 64 for women
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New research from Bank of Spain suggests that Spain has the third most generous pension system in Europe, trailing behind only Italy and Greece in terms of pensions relative to average salaries.
But, it warns that the system will be put under significant strain in the coming decades as the baby boomer generation begins to retire.
The Comparative Spending on Pensions in Spain study revealed that Spain exceeds the European average in pension spending as a percentage of GDP, as well as concluding that Spain's average pension in relation to average salary was the third highest of all Eurozone economies.
The investigation, based on the latest data from 2019 concluded that Spain spends 12.7 percent of its GDP on pensions, over 2 percent more than the EU average of 10.4 percent.
READ ALSO - Older and more diverse: What Spain’s population will be like in 50 years
Though Spain was high in terms of pension payouts relative to average salaries, it was still behind a few EU countries when it came to the amount of GDP it spent on them. Greece spent 16.1 percent of its GDP on pensions, Italy 15.9 percent, France 14.7 percent, Austria 14.1 percent, Portugal 13.7 percent and Finland 13.3 percent, compared to Spain's 12.7 percent.
The report also highlighted that Spain's relatively low employment rate combined with its comparatively high amount of pension benefits, both in relation to the average wage and as a proportion of GDP, are factors that drive up Spain's pension spending compared to other countries.
The bank's data suggests "pensions expenses are 34.1 percent higher than Germany in relation to contributions, and 34.1 percent higher than France," which explains why pension payouts are so high relative to the average salary, and why Spain can claim the third most 'generous' pension system in Europe.
Looking ahead
The combination of such generous pensions combined with high unemployment doesn't seem sustainable, however, according to the report.
The Bank of Spain also warned of "remarkable upward pressures" on pension spending in the coming decades and recommended that Spain create more jobs in order to try and alleviate this spending pressure.
By 2050, the bank believes, Spain will "become the country with the second-highest pension expenditure in the European Union, behind only Greece".
As alarming as the report may seem, Spain is slowly approaching a demographic crossroads: the retirement age population is expected to increase by 67 percent by 2050, while those of working age will decrease by 10 percent, according to Spanish outlet El Independiente.
According to new projections released by INE, Spain’s national statistics body, the Spanish population is set to undergo some big demographic changes in the coming years.
Taking a broad view of the statistics, Spanish society is set to get older and made up of more immigrants in the future, with the INE figures predicting that Spain will gain over 4 million (4,236,335) people by 2037, with the population set to reach 51 million. That represents an increase of 8.9 percent.
The Spanish population is also set to get older, with the percentage of the population over 65 years of age predicted to peak in 2050, when almost one in three will be 65 years old or older.
READ ALSO: Spain’s over 65s exceed 20 percent of the population for the first time
At a time when pensions are a big political talking point in Spain, by 2035 around one in four (26 percent) of Spaniards are expected to be 65 or older.
With this stark demographic change on the horizon in coming years, the Bank of Spain report suggested that a way to prepare for and offset this anticipated surge in pension payments would be to boost employment levels: "Slightly more than 40 percent of this increase [in future pension spending] could be compensated if the employment rate rises to the level of Germany," said the bank.
The unemployment rate in Germany is currently 5.5 percent, while in Spain it is 12.4 percent.
With an ageing population and declining birth rates, the Spanish workforce will increasingly rely on inward migration in the coming years. According to INE projections, by 2072 36.5 percent of people resident in Spain, a little over one in three, will have been born in another country.
Retirement age
But how does Spain rank in terms of retirement age?
Of EU member states, Greece, Italy, Luxembourg and Slovenia have the lowest retirement ages at 62. France is 62, but the French government plans to raise it to 64 by 2030.
The EU average stands at 64.3 years for men and 63.5 years for women, and the Spanish average is a fraction above that at 65.
Retirement ages (latest available data)
- Germany - 65 years 7 months
- Austria - 65 for men, 60 for women
- Belgium - 65
- Bulgaria - 64 years and 1 month for men, 61 years and 2 months for women
- Denmark - 65
- Spain - 65
- France - 62 (becoming 64)
- Finland - 63 years and 3 months
- Greece - 67 or 62 (depending on the level of insurance)
- Hungary - 64
- Ireland - 66
- Iceland - 67
- Italy - 67
- Luxembourg - 65
- Norway - 62
- The Netherlands - 66 years and 2 months
- Poland - 65 for men and 60 for women
- Portugal - 66 years and 5 five months
- Sweden - 61
- Switzerland - 65 for men, 64 for women
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