The elephant in the room

3 febrero, 2016 • By

Last week I published an editorial in the journal El Economista Comunitat Valenciana to reflect on the current status of the pensions nest egg and what its situation would be in the not-too-distant future. I also wanted to share this on my blog. I hope you like it.

These are changing times, not only in Spain but also in in our main neighbouring countries. We are faced with a range of challenges and the aim is to ensure sustainability and sufficiency of the Welfare models.

Life expectancy is flourishing, driven by progress in the fields of medicine and prevention. If midway through the last century life expectancy did not reach 75, by 2050 it is estimated this could exceed the age of 90. This has a major impact on a society’s economic stability, not only in the sphere of public pensions, but also on health, care and dependency.

By way of an example, let us consider a retired person who midway through the last century did not used to receive their pension for more than 10 years, while in the near future it will be normal to receive a public retirement pension for 20 or 25 years.

For the first time since the crisis period and based on figures published by the Ministry of Finance, the expenditure that Public Administrations spent on Health and Education grew in 2014. This is a sign that the cost containment measures introduced during that period have gone as far as they can.

The first figures for 2015 also point to growth on health spending well above forecast GDP. Consequently, we return to the worrying path of stages prior to the bloom of the financial crisis in which, for example, public health spending over the 2002-2009 period was up almost 82%, while GDP only grew around 30%.

And it is of concern that once we have overcome this economic situation, yet still below the economic situation of 2008, we continue to act with the same outlook, with the same focus as before the recent crisis because we have failed to remove the apathy of the past. This is the consequence of applying cutbacks instead of long-term reforms. And it is a point that we shall be seeing over the next few years. The challenge to sustain the core components of the welfare model, basically health and pensions, will be the centre of debate as a consequence of a demographic, technological and sociological topic.

The evidence cannot be ignored. Moreover, the scenario is even more complicated because of the low ratio between affiliates to the System and pensioners. Looking the other way may be convenient in the short term, but useless over the long term. There’s an elephant in the room. Let’s not look the other way. And meanwhile, let’s keep on talking.