The Governor of the Bank of Spain recently declared that “the public pension system will not guarantee the future level of pension expected by Spaniards” (*) and it will be necessary to supplement pensions with private savings.
The pension system, as established in Spain, is not sustainable.
The population of retirement age gradually increases; birth rate decreases. There will be more pensioners but fewer contributors in the future. The “Reserve Fund of Pensions” was created in 2000 in order to prevent this shortfall in revenue in the Social Security. But the state has already spent some of those funds and some studies predict that it will run out by 2028.
Another added problem is the recurrent deficit of the Social Security because of a drop in contributions, lower new wages and hiring bonuses.
Birth and mortality rates, different family types, new ways of living and aging, job stability and unemployment rates… are parameters that threaten the pension system.
Given this uncertainty, it is time to take the reins: it is no longer about “complementing” a state pension (which may not arrive), but to ensuring from early ages revenues to meet our expectations in retirement (we live longer, we have different lifestyles and expectations in retirement).
In many European countries young people begin their pension plans with their first contract. In Spain the savings culture is not rooted, and often other priorities (summer holidays, children’s education expenses, and holiday spending …) take precedence over it.
Pension Plans and Savings Plans foster a savings discipline and rely on private initiative. The former are less flexible but have more tax advantages; the second, conversely. A 18 year old who saves € 30 monthly will get a considerably larger pension than another starting at 30. Time makes a difference.
Despite the pressure from the banking sector to corner the market in this area, our advice is to procure independent advice to help make the right decision. It’s time to look at the future with peace of mind.
More information here.
(*) Luis María de Linde, interview (El Mundo, 06/24/2015)