Researchers from the Universities of Valencia and Extremadura have developed a new Fedea indicator comparing expected pension benefits against life cycle contributions. Spain’s value is projected to fall from 1.34 in 2022 to 0.90 by 2050, a drop of 0.44 points.
The study by Devesa, Domínguez, Encinas, and Meneu uses an interest rate tied to average GDP growth. While a value below 1 suggests sustainability, Fedea warns that the underlying government projections provided for the Ageing Report 2024 are overly optimistic.
The retirement of the baby-boom generation is expected to increase the system's deficit by 2.5 percentage points of GDP. Despite improved sustainability after recent reforms, researchers noted a surprising and drastic reduction in the new pension replacement rate.