The government will re-examine pensions due to pressure from Brussels.

The government will have to repeat the pension review recently conducted by the Fiscal Authority (AIREF), which on March 31 determined that no adjustment to the system was necessary . It is doing so due to pressure from Brussels to comply with the requirements of the European funds linked to the recovery plan approved due to the pandemic. Now it will have to be addressed again before June 1, 2026: just one year after evaluating them, when the law stated it would be addressed every three years. The government has included this review in a draft royal decree that will be processed urgently and will, in principle, take about three months to enter into force. Furthermore, the tax transfers that the government incorporated, as if they were new revenue, in an attempt to avoid an adjustment have been removed from this "additional" review, according to the legal text to which EL PAÍS has had access and which has entered into public hearing. However, according to knowledgeable sources, the government expects that an adjustment by raising contributions will not be necessary, since, although transfers have been eliminated, the improvement in GDP could be enough to compensate for it.

According to these sources, the EU executive branch was upset that these tax transfers to Social Security were included in the review. The reason was that only the state of the pension system was taken into account, not that of public finances as a whole. They argued that the accounting loophole was simply being moved from pensions to the budget. This violated the spirit of the pension reform, which had been included as part of the European funds and through which Spain had already received funds. In the midst of the evaluation for the next payment of European funds, the experts indicated that this milestone had been missed and that the disbursement of funds could not proceed. Technically, this is a reversal of an objective that had already been considered completed.

The government justifies that, in line with the Commission's recommendations, it has requested an "additional report" from Airef as a follow-up to better assess the effects of tariffs, possible GDP revisions, and certain revenue-boosting measures, such as labor reform. "This report does not represent a new assessment, but rather an exercise in transparency that aims to strengthen confidence in sustainability," a spokesperson stated.

The government has pressured the Commission because it lacks the budget and needs these resources. But Brussels has made it clear that the reform cannot be left as it is. Its experts have reiterated that when the European Court of Auditors conducts the audit, it will end up demanding the return of the funds for non-compliance. And then European officials themselves could incur some kind of financial liability.

The preliminary assessment conducted by the Fiscal Authority in 2023 stated that an adjustment of around 0.8% of GDP, about €12 billion, would be required . But then the Spanish government changed the rules of the assessment, introducing the transfers injected by the State , which had already been approved when the assessment was agreed with Brussels and therefore had no additional effect on sustainability. Furthermore, they worsened the accounts of all public administrations. It was like adding them together twice. So the Commission has forced the government to correct the situation and redo it. In any case, the improvement in GDP in recent years has been such that it could offset part of the adjustment. The new assessment will also have to consider the sustainability of public finances as a whole.

The president of Airef, Cristina Herrero, already pointed out that the reason why an adjustment was not necessary was largely the improvement in GDP. She added that this was a temporary reason that could be reversed if the economic environment worsened. The updated macroeconomic data assumed a reduction in net pension spending of 0.7 points of GDP on average between 2022 and 2050. A further 0.3 points of GDP in transfers and another tenth of a percentage point from the improved revenues resulting from minimum wage increases were taken into account. The adjustment was saved by 0.2 points in the March 31 review.

This assessment was imposed by Brussels to ensure the sustainability of the system and must be prepared by the Fiscal Authority every three years. To do so, the institution must consider the benefit spending projections published by the European Commission in its report on aging and combine them with its own assessment of the measures approved by the government to increase revenue collection. Once cross-referenced, if net spending on revenue measures exceeds 13.3% of GDP on average between 2022 and 2050, an adjustment would be required to reflect the gap found. If compensatory measures are not approved, contributions would automatically increase by one-fifth each year over five years.

The new royal decree states that the contribution increases approved with the pension reform designed by then-Minister José Luis Escrivá must be taken into account in the review: the solidarity mechanism, the uncapping of contributions, the solidarity quota for high salaries, and the progressive equalization of contributions for the self-employed with those of salaried workers. In addition, reforms that increase the number of contributors and, therefore, revenue collection must be included.

The Fiscal Authority has consistently maintained that this review was not an adequate indicator for measuring sustainability. And the IMF had already indicated, citing the Airef (Regional Finance Institute), that the pension review was not well designed and should be based on the projected deficit between expenditure and revenue, rather than using net expenditure. According to Airef's forecasts, this gap would reach 3% of GDP in 2050, approximately €45 billion at current GDP. The Royal Decree's own explanatory memorandum recalls that several international organizations have pointed out the problem that the sustainability of total public finances was not taken into account. The Fiscal Authority conducted a parallel review in which it stated that sustainability had not improved and that the dynamics would require diverting resources from other items to cover retirement benefits.

That Airef document projected that due to aging, debt will increase by 47 points of GDP by 2050. Of this increase, approximately 31 points would correspond to the increase in pension disbursements. A permanent annual adjustment of 3.16 points of GDP would be required until 2040 to leave debt on a downward path relative to GDP, it stated, although it noted that the government has already committed to half of that adjustment, approximately 1.68 points, with the fiscal plan already submitted to Brussels, provided it is fulfilled.