SPAIN - The Organisation for Economic Co-operation and Development (OECD) has called on Spain to revise the parameters underlying pension calculations to make the system "actuarially fair".
“The parameters underlying pension calculations will have to be revised to at least ensure that the discounted value of old-age pensions is not higher than the sum of the corresponding contributions, making the system actuarially fair considering that the revised parameters will only apply to future generations of pensioners affected by the demographic shock,” the organisation said in its Economic Survey – Spain 2005.
“This could mean basing pensions on earnings over an entire career instead of the last fifteen years, or reducing the average rate of accumulation of pension entitlements, but it may also be necessary to means-test revenues of those drawing on more than one pension.”
The OECD said the impact of population ageing in Spain would be felt later on but more acutely than in other countries, because the parameters underlying pension calculations are “more generous” – even if the average level of pensions is low at present.
“On the basis of favourable assumptions of increased immigration and employment, pension spending could rise by almost 8 percentage points as a proportion of GDP by 2050 if the generosity of the system remains unchanged [for example] if the number of pensions received per person aged over 65 and the average benefit relative to productivity remain stable,” the organisation noted.
The OECD said acknowledgement of the need for reforms concerning both receipts and benefits was made in the Toledo Pact, but little progress had been made in recent years. But, in the context of the “Declaration in favour of social dialogue”, signed in July 2004, a negotiation process has started that will tackle pending challenges outlined in the Pact.
Raising the level or number of years of contributions to certain schemes would be welcomed, the OECD said, however the average level of pensions compared to per capita GDP will have to be lowered by some means to contain the rise in pension outlays, it added.
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