The new revaluation and sustainability factor of the Spanish pension system

The gradual ageing of the population foreseen in the demographic projections available for most developed countries will exert growing pressure on pension systems. Spain is no exception here; the latest projections published by INE (National Statistics Institute) envisage a significant increase in the dependency ratio in the coming decades. Specifically with a view to counteracting the impact of these demographic shifts, in recent years various pension reforms have been passed in Spain. In 2011, a gradual increase in the statutory retirement age and in the period used to calculate the amount of the pension (the “regulatory base”) was introduced, among other changes. More recently, at the end of 2013, a reform was passed that establishes a new revaluation index and regulates the “sustainability factor”. Under this reform, from 2014 pensions will be adjusted according to the performance of variables pivotal to the Social Security system, such as revenue, expenditure and the number of pensions, replacing the former system, in force since 1997, which linked pensions to the rate of change of the CPI. Moreover, from 2019, starting pensions will be automatically linked to the increase in life expectancy (the sustainability factor). This article describes this reform, placing it in context, and analyses its potential impact. In particular, the second section examines population ageing in Spain and the latest public pension reforms. The third section describes in detail the 2013 reform, while the last section analyses its effects and draws some conclusions.