Spanish Pension System: Population Aging and Immigration Policy

There is a widespread consensus in the literature that, as consequence of the demographic transition, the current Spanish pension system will become unsustainable in the next decades. In this article we evaluate the sustainability of the contributory pensions' sub-system, taking into account the demographic projections by the Spanish Statistical Oce (INE). A baseline scenario is projected as well as several reforms are simulated, focusing on: (i) selective immigration policy, (ii) changes in the way of tting the pensions and (iii) increase of the legal age of retirement up to 68. The main results are the following. The current system would not incur de cits until 2018, from then de cits will begin to be accumulated. The expenditure in pensions practically would double (from 8.3 % in 2005 to 17.2 % in 2050). A selective immigration policy -towards foreign young people- would help, but does not solve the long-term sustainability of the current system. A policy that combines a pensions' growth at a pace lower than productivity growth and extends the legal age of retirement up to 68 would give solvency to the system beyond 2029.