After Years of Crisis in Spain, Pensioners Next to Feel the Pain

Doubts emerge as to who is saving whom.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Structural unemployment and falling wages, precarious jobs, an endless brain drain, a rapidly ageing population, and the government’s constant pilfering of the national pensions pot have all taken their toll on Spain’s social security system. As we warned last November, the country’s Social Security Reserve Fund, which was meant to serve as a nationwide nest egg to guarantee future pension payouts — given Spain’s burgeoning ranks of pensioners — has been bled virtually dry by the government.

To avoid wiping out the fund altogether in 2017, the Spanish government extended a €10.1 billion interest-free loan to Spain’s social security system, which enabled it to pay out the two extra pension payments due in June and December. That way, only about €7.5 billion would be tapped from Spain’s public pension nest egg. Emptying the pot altogether last year would have been politically unpalatable, said El País. Instead, it will be emptied this year as the social security system racks up yet another massive annual shortfall.

In 2016, the system registered its biggest deficit in its history (€18.1 billion), which was covered by the pension pot. In 2017, the deficit is estimated to be about €17 billion, according to the government. That’s roughly 1.5% of Spanish GDP. The deficit in 2018 is projected to be €18-20 billion.

Clearly, Spain’s pay-as-you-go pension system, like so many in Europe, has sustainability issues. After years of inaction (apart from bleeding the public pension pot dry), the government is finally beginning to take measures ostensibly aimed at addressing these problems, by:

1. Significantly reducing the size of the monthly payouts for pensioners. The national pension fund’s payout ratio (pension as percentage of final salary) is the second highest in Europe after Greece, but that is about to change in a very big way. According to a study by the consultancy group International Financial Analysts, following the government’s latest round of measures, a pensioner who retires today will lose on average the equivalent of €350 a month in purchasing power over the duration of their retirement. That’s a lot of money, especially for the roughly two-thirds of pensioners on less than €1,000 a month.

2. Gradually increasing the minimum pension age, which has risen from 60 to 65 and five months in recent years but is expected to rise to 67 in the coming decade. According to Spain’s most influential business lobby, the Spanish Confederation of Business Organisations, the lower limit should eventually be raised as high as 75.

3. Carving out a larger role for private pensions, many of which are in desperate need of fresh funds.

In the last few weeks, senior government representatives have suddenly begun talking up the need for people to prepare financially for their retirement. In synchronized fashion, the country’s largest pension fund managers have launched a massive PR campaign on radio and social media to win the hearts and minds of pensioners-to-be. The message could not to clearer: get saving for your future.

In an audacious masterclass of financial ignorance, Celia Villalobos, an MP and president of the cross-party Toledo Pact committee on pensions, encouraged young people to save just two “little” euros (eurillos) a month to safeguard their financial retirement. The magic of compound interest would do the rest, she said, somehow ignoring the fact that in the NIRP-zone, interest rates are at or near zero. And even the most gifted and trusted fund managers would be hard-pressed to turn the grand sum of €840 — the result of 35 years of saving 2 euros a month — into hundreds of thousands of euros needed for retirement.

In Spain more than eight out of 10 private pension schemes don’t even beat inflation. According to a study by professors from one of Spain’s most prestigious business schools, IESE, during the 15-year period between 2001 and 2016, the average return of Spanish pension schemes was 2.03%. Of the 335 pension plans launched in Spain during this period, 278 generated overall losses in purchasing power for their users. Just three funds were able to outperform Spain’s benchmark index, the IBEX 35.

Spain’s biggest private pension scheme, which is managed by the country’s third biggest bank, Caixabank, and has €3.42 billion of funds under management, generated average annual returns of -1.01%. In other words, after 15 years the scheme’s users were 15% worse off. And that’s before taking inflation into account.

Yet despite the general poor performance of private pension schemes in Spain and the exorbitant commissions they charge compared to other countries, on December 31, 2016, 7.1 million investors had €65.3 billion invested in them. But in the first nine months of 2017, something unprecedented happened: more money flowed out of the pension plans than into them. For the first time in 30 years the industry’s balance was negative, to the tune of some €580 million, as more and more people drew down their investments.

In an in-depth report on the sector, the financial daily Cinco Dias asked whether the private pension schemes had become a “zombie product.” The best way to turn the situation around, the report concludes, is to make them “quasi mandatory,” by essentially forcing companies to invest part of their employees’ salary in them, as happens in many other countries.

The government, banks and many economists will argue that this is necessary to make Spain’s pension system sustainable, but the question is sustainable for whom? Who is really being saved here? Spain’s current and future pensioners, or the largely bank-run pension schemes that are so desperately in need of fresh funds? If past is truly prologue, I’d put my two eurillos on the latter. By Don Quijones.

After a large Spanish construction firm with global projects collapsed, all kinds of debts oozed from the woodwork. What happens if cases like this prove to be the rule rather than the exception? Read… On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

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  37 comments for “After Years of Crisis in Spain, Pensioners Next to Feel the Pain

  1. Tom Welsh says:

    When will the trials take place? I just want to watch the hangings…

    By the way, pensioners can turn out to be surprisingly strong. And I hear that some of them are very good shots.

    • Paulo says:

      Tie all Govt members pensions to health of the Public Plan available for regular citizens.

      We get a cut? You get a cut as a % of your income. In other words, cut common pensions by 30%, yours gets cut by 30%

      We have to work longer to qualify? So do you. etc etc.

      As I read this article and see the attacks going on all over the World to take from regular folks and protect the connected, I am astounded there is no violence in the streets.

      • Frederick says:

        Violence in the streets you say ? Most people are either too drunk or too drugged up to get off the couch sadly

        • Ricardo says:

          ** Most people are either too drunk or too drugged up to get off the couch sadly **

          Not forgetting the cctv camera’s to watch everyones move.
          Here in the Philippines the govt has just released an app called DU30 which gives the ability to stay up to date with the latest news from the government BUT also you can report crime BUT now they have another way to keep track of citizens.
          Is it any wonder there is no protest. The ability to track every worldly citizen keeps increasing…..even in supposedly third world countries.

          And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name. Revelation 13:17

      • Don Quijones says:


        It’s worth adding that Spain is apparently one of just three advanced economies where ex-ministers and ex-presidents are awarded life-long pensions regardless of the age at which they retire from politics and all the money they’re showered with once they emerge on the other side of the revolving door.

        • Phil Collins says:


          You write some damn interesting articles.

          I reside in the UK and follow all of Europe very closely because I think this house of cards is going to collapse. Here in the UK our taxes stay the same and we have hospitals closing wards & A&E’s, our roads are not being repaired, closing Police Stations, people waiting to be unloaded from ambulance’s take up to 3 to 4 hours. You can not make a doctors appointment without the doctor calling you back to see if he can fob you off. It feels like Venezuela at the beginning of their collapse.

          I have read enough history in my life time to be able to recognize an economic collapse when I see one. Most people will go on with their lives and hope that it will all turn out. The violence will come when people feel the pain. When folks are losing and they have nothing else to lose they lose it.

          It is not only Spain that has pension issues. I have been yelling from the roof tops for years. When pensions were first sold many years ago, the bean counters used in their models an interest rate of 6 to 8% because historically that was the norm but since ZIRP and NIRP and interest rate suppression for well over a decade now all these pension funds have been taking on water. This will have forced pension fund managers into risker trades. Also many countries force pension funds to hold a certain % in sovereign bonds and to be honest there are many countries in Europe that I believe will default on their bonds. It has been less than a hundred years since the whole of Europe defaulted on their sovereign bonds. I know; its different this time.

          If you have a bunch of old people that have just lost their pensions and they are on the streets, well they wont care if hey have to go to jail for their last few years and be feed and looked after by the state. I think things could get very bad.

        • Frederick says:

          Describing Spain as an advanced economy is somewhat of a stretch My German nephew and I couldn’t find a single person who spoke a word of English or German while traveling from Barcelona to Alicante It’s still pretty primitive in the hinterlands

      • MaryR says:

        Raise the minimum age of retirement to 75 and 90% of people will either never collect or collect for just 5 years, after paying taxes in for 50 to 55 years or more.

        Wait…this must be the plan…a great deal or is it steal?

        • d says:

          “Wait…this must be the plan”

          So you finally figured it out.They made that decision in Multiple States/Nations with the Western large welfare style pensions, nearly 25 years ago.

          Only the socialist states spending German money like greece france Spain try to cling to the 55 retirement age.

  2. Arnold Ziffel says:

    Excellent summary of the future of US Social Security. Also need to change wage to age. 2. Gradually increasing the minimum pension wage

  3. Robert says:

    We are lucky here in the Good Ole USA !

    Remember when Al Gore proposed a “Lock Box” for the so-called Social Security trust fund ?

    He dropped that like a hot tomato when his party made him see that the lock-box was not tenable.

    So our “Trust Fund” cannot run out of money because (in sotto voce) THERE IS NO TRUST FUND ! ! !

    (Not in reality, no sir!)

  4. unit472 says:

    How long before the happens to Social Security? 10 years or will cuts be avoided by ‘means testing’ benefits? Central Bank financial repression has forced many retirees and pension funds to make risky investments and any repeat of 2008/9 will wipe millions out. Then what?

    • walter map says:

      “Then what?”

      Then you realize I was being serious about planting potatoes to survive, and also about food riots and old people dying in the alleys.

      Use your imagination. You’ll get there.

      When . . . you realize that all along, something in us going wrong, you stop dancing

      Helpless Dancer

      Spain, like Greece, was just for practice. Iceland, to its credit, figured out how the game was rigged and jailed the banksters before it was too late, because after they took over they weren’t at all likely to jail themselves. The real targets are the US and the EU, and for them it is too late.

      • Frederick says:

        I’m preparing my garden now I’ve got all kinds of seedlings going all from last years crop

    • Kent says:

      Increase the employee and employer payroll taxes from 6.25% to 7%. Increase the wages subject to SS from $135,000 to $500,000. Borrow your way through a few negative years at the max of the baby boomers and SS is good as far as you an reasonably calculate. But somebody has to be willing to make that an option.

    • Anon1970 says:

      If you have earned a decent retirement income, you will be paying extra for your Medicare Part B and D. The higher premiums will come out of your Social Security monthly benefit. Single seniors are subject to Medicare premium surcharges when their Modified Adjusted gross Income hits $85,000 annually (since 2007). That may sound like a lot of money if you live in Mississippi or Alabama but it is not in the country’s major metro areas. in 2015, the premium surcharge schedule was adjusted upwards for many seniors with the higher premiums to take effect in 2018. The higher premiums went into effect in January. The income level at which surcharges kick in has never been adjusted for inflation, so each year more and more retirees are subjected to them.

      At some point in the future, it may make sense for some seniors with dual citizenship to leave the US and never come back.

  5. TheDona says:

    Sounds like the time has come to cut back on medical care for retirees. Spanish average life expectancy (83) is too long. US life expectancy is now 78….why do you think they are doing such a huge PR push to delay taking SS until 70?

    Wish I could say this was sarcasm…but your overlords look at actuarial tables and we are all dispensable widgets.

    • Tom T says:

      usa male life expectancy 72.4 not 78

    • MaryR says:

      I noticed that as soon as we boomers in the US got close to retiring at 62, the presstitutes and many financial articles started pushing retire at 70 as the new normal. I note this is 8 years later than the most popular time to collect (age 62).

      Per the SSA, you end up with “the same benefit dollars in the aggregate whenever you start, because it is all calculated based on life expectancy.”

      This is only true if you live to about age 78 or older if you delay starting to collect to age 70. Of course, if delaying to 70, it is FALSE for everyone who DIES from age 62 to 69, as you collect nothing.

      It is also a false statement for the large percentage who will die from age 62 to 77, as it is less than the aggregate amount collected starting at 62 and dying at the same age, at any age below age 78.

      Feel no guilt. Trust your instincts. Take the money.

      Do not trust anything the government pushes as a beneficial social security change….in any country.

  6. todde says:

    So the ECB printed 2.5 trillion Euros in the last two years for corporate/government bondholders but not one cent for a pensioner?

    • Wolf Richter says:

      That’s how that works.

      • manuel says:

        Wolf you and “Todde” both are wrong, those government bonds were issued in the first place to pay pensioners income!

        The problem in EU and as far as I can read in the US also, was that boomers became the “main target” of how to win elections.
        So politicians gave boomers what countries “could not afford”.
        In EU where I live most in every country, Public pensioners pay 11-13% per month during their work life of about 30~35years.
        When they retire they will earn 100% during 20~25Years.

        How’s this sustainable ??

        By my calculations Public workers only pay for 4~5years for their pensioner life. Private workers 12~14years.

        After that boomers are living by “stolen” money.

        Now “Wolf” you have your answer about the need for so much “debt issues”.

        • Nick Kelly says:

          Congrats. So far it looks like you are the only commenter not ascribing ALL the problem to an evil ‘they; who have stolen all the money from the good folk.
          Note at the top of the piece which country edges out Spain for highest payout in pensions: Greece.
          For his book ‘Boomerang’ Micheal Lewis went to Greece and studied its pensions and revenues. A succession of further and further left wing governments promised more and more.
          Hundreds of occupations were designated ‘arduous’ permitting full pension at 55. Example: disc jockey.

          Needless to say the bloated public sector was worse. A typical admin worker would make more than his German equal.
          This is paid in euros and to all those who think Greece should go back to the drachma…..their public sector does not.

        • d says:

          What you very accuratly describe here.


          THE FLAW with Democracy in its current incarnation.

          A few simpole laws can prevent this happening.

          BUT the leftists in particular do not want their ability to continually buy elections with stae money the State does not have and never will have, taken away. Hence will not support them.

          We had legislation proposed and moving forward that no government could present a deficit budget without out a 75 % (?) majority vote to pass it.

          The left is back and this legislation has quietly died.,

      • d says:

        2. Gradually increasing the minimum pension wage, ????????????

        Age is that not meant to be??

  7. raxadian says:

    Moving to a third world country were you have relatives and Euros are worth a lot is one of the few ways to deal with this.

    Seen some of it personally around here.

  8. Christoph Weise says:

    Pension systems around the globe will fail to cover their obligations. And most pensioners will have to live on a minimum – except for some wealthy folks and people on inflation-indexed pensions. This will force many people to leave the large and expensive cities and drive them to the country-side where the will work on dachas to make their living.

  9. WES says:

    Hi Phil Collins:

    A few years ago I read a story about an old Japanese fellow with no family who upon being released from prison would promptly steal some very minor item from a store in order to be caught again. The judge asked him why he kept stealing such small trivial items everytime they released him?

    His reply was so the government would have to put a roof over his head, provide a dry and warm place to sleep, and three meals a day!

  10. WES says:

    Up until recently, when Canada legalized pot, I used to read nearly every week in the local newspaper another grow-op being busted by the local police.

    The paper always provided details of the suspects and their age. What I found very fascinating was most of these folks were typically near retirement age 50 – 60 years old whose luck had probably run out and were probably pretty hard press just to survive.

    I used to joke that this grow-op career choice was the only job left for these poor old folks that came with 100% government guaranteed free all inclusive retirement benefits!

    Sadly Trudeau has now eliminated these jobs for old folks.

    • Frederick says:

      I still find it outrageous that growing any plant can be considered a crime You would think a good lawyer could find lots of ways to beat such a charge

      • Nick Kelly says:

        Maybe today with the law in flux but pot is still a class C substance ranked with heroin and cocaine from an international convention going back to the 1930’s.

        Please note I’m not saying it SHOULD be that way.

        Up until quite recently the best lawyer could argue for reduced sentence but no way could he argue you were not guilty (assuming you stipulated to growing the plant)

        Are you also for allowing cultivation of opium poppies?
        Of course a real libertarian would but just because it too is a plant doesn’t mean a good lawyer can allow you to do it.

  11. walter map says:

    Life is a problem for everybody. Great loss is unavoidable, and all must endure. That is understood. But what pains me particularly is how grief is so commonly, needlessly, and deliberately multiplied by business leaders and political leaders in their blind pursuit of their own power and avarice, who with indifference, and malice, and spite, betray entire populations that have little choice but to rely on them and are at their mercy. The very greatest criminals are those who reward themselves immensely, openly, and shamelessly, for compounding the misery of millions, regardless of the veneration they receive in the news media and the history books and the fine inscriptions on their statues.

    In a little while, with the vast powers they now have, they will be the death of all, and that will be the end of it.

  12. Peter Mott says:

    The remark “an audacious masterclass in financial ignorance” is absolutely hilarious.

Comments are closed.