15.02.2017  Appearance by the Governor of the Banco de España Parliamentary Committee for the Monitoring and Assessment of the Toledo Pact Agreements Luis M. Linde Governor  Ladies and Gentlemen, I appear before this Committee for the Monitoring and Assessment of the Toledo Pact Agreements to present the Banco de España’s analysis of the current status of and outlook for our public pensions system and its reform. The analysis is in a paper recently published by the Banco de España and takes a technical approach. This means we have attempted not to enter into political considerations, though these prove difficult to avoid when it comes to choosing one or more of the different reform options available. I shall begin with some thoughts on the recent developments in our public pensions system, moving on to the medium- and long-term outlook, and concluding with some general comments on possible reforms. Drawing on the final annual figures for 2015, the Social Security System deficit stood at 1.5% of GDP, in contrast to the surplus of 1.4 % of GDP posted at the start of the crisis. The information on the budget outturn for last year, 2016, suggests that this deficit will have increased. Analysing the source of this deterioration, we can conclude that it came about essentially owing to the increase in expenditure, which rose as a proportion of GDP by 3.9 pp from 2007 to 2015 to 13%, while revenue expressed as a proportion of GDP increased by 0.9 pp.
In this regard, any measures that discourage early retirement and allow people to extend their working lives beyond the age of 67 would have a positive bearing on the financial sustainability of the system. Some countries have opted to build in an automatic link between life expectancy and the permitted retirement age in their sustainability mechanisms. Others have undertaken a broader change, adopting a notional definedcontribution accounts system, which has some advantages in terms of increasing the transparency of the system. Moreover, against the background of a significant rise in the dependency ratio and future reductions in pension replacement rates, it might make sense to extend the role of retirement saving to complement the resources of the public contributory system with the accumulation of financial assets supplementing future public pensions. In any event, implementing a funded system is complex and requires detailed prior analysis of issues such as the length of time needed to implement it, whether it is voluntary or compulsory, the returns it can offer in a scenario of demographic stagnation and sluggish productivity growth, and how the costs associated with implementing this change are to be shared out intergenerationally. 2) As regards new sources of funding, the alternative is to raise social contributions or other taxes, or permutations along these lines. Increasing social contributions may have adverse consequences for employment, since their weight in overall taxation is already higher in Spain than in other comparable countries.