SPAIN - Spain must develop a "more far-sighted long term strategy" to deal with fiscal management in the context of population ageing, according to the OECD.
The Organisation for Economic Development (OECD) suggested extending the contribution period required to qualify for a full pension, and reducing early retirement incentives.
Public pension spending will cost in the order of 7% of GDP by 2050, the organisation estimates - more than in most other EU member states because of the “larger, albeit later, demographic shock” and the “insufficient actuarial fairness of the old age pension system”.
“Indeed, its parameters provide pensions whose discounted value on average exceeds the sum of corresponding contributions,” the OECD said.
“Although the massive recent increase in immigration has improved short term pension finances, it has reduced the public’s awareness of how urgent it is to deal with the problem so as to minimise adjustment costs.
“As the present average level of pensions is low and is expected to rise only slowly, reducing the replacement rate may not be the right approach.
“Rather, the appropriate strategy might be to gradually extend the contribution period required to qualify for a full pension. Incentives to take early retirement should also be removed and working lives prolonged.”
The OECD said while some “modest reforms” have been recently undertaken to the pension system, further progress was necessary.
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