Numerous experts had already anticipated that all the corrective factors introduced in our public pensions would reduce the purchasing power of pensioners. Let's see what they say in concrete terms.
Recent pension reforms
As we have discussed in numerous previous articles, the sustainability of pensions is in question. The permanent deficit of the Social Security system is aggravating a situation that is provoking the depletion of the “Pension Piggy Bank”.”.
Faced with this prospect, the government has been introducing new ways of correcting pensions, which basically reduce the amounts to be received by new pensioners:
- Increase the number of years that influence the calculation of the pension to be received: it will progressively increase from 15 years to the last 25 years of contributions.
- Control the index that revalues pensions annually, leaving 0.25% (previously linked to CPI).
- The retirement age is raised from 65 to 67.
- Establishment of a sustainability factor: this factor, due to the increased longevity of pensioners, controls and reduces the pension, in order to be able to pay it for more years, basically.
Expert opinions
Recently, the president of Inverco, Angel Martinez-Aldama, on the consensus of economists, that over the next four decades, pension revalorisation will remain at 0.25%. The worst of its consequences is this: the loss of purchasing power.
The consequences of such a significant reduction in the purchasing power of pensioners are very serious. Especially because the cumulative effect of such a drop in purchasing power over 40 years is enormous.
If so many experts are on the same line, we must assess the consequences, and act to correct the effects of all this on our domestic economy.
Promoting financial literacy and other proposals
Angel points out the importance of reinforcing information to workers, from the government, so that they can act accordingly (knowing what pension they will be left with).
Why? Because of what he himself said: “The diagnosis is clear. We are going to go from 8 million to 15 million pensioners. The challenge will become more acute in 2022 and 2023 with the retirement of the baby-boom generation‘.’
He proposes to carry a 4% of employees' contributions to an individually funded scheme, to cushion the reduction in pensions.
It is no trivial matter that the substitution rate (which compares the last salary with the first monthly pension payment), is to be reduced from the current 80% (one of the highest in the OECD)., about 50% in just thirty years.
This greater financial culture that the experts talk about would translate into informed decision making. As an Insurance Brokerage in continuous training and with a specific Savings and Investment Department, we must advise you on supplementing public pensions. If you want to find out more, please contact us.
