How Much Does It Cost To Update Pensions In Spain In Line With Inflation?
One of the most controversial aspects of the 2013 reform of the Spanish system of public pensions has been the introduction of a revaluation index (the so-called IRP) which linked the updating of pensions, once triggered, to the financial situation of Social Security, thus abandoning the traditional reference to inflation measured by the consumer price index (CPI). Given the measure´s unpopularity, once inflation recovered after the crisis, it did not take long for it to be provisionally suspended. Currently, there seems to be a broad consensus among the main politically parties to abolish it altogether, returning to the general indexing of pensions to the CPI.
Although maintaining the purchasing power of pensions is certainly a desirable objective, it cannot be the absolute priority at any price. The general indexing of pensions to inflation is a potentially expensive compromise, especially in the complicated demographic circumstances which we have confronted in recent decades. It is therefore necessary to analyse carefully the costs and benefits of abolishing IRP and evaluate the possibility of establishing some kind of limit or safeguard on indexing to CPI or introducing compensatory measures which help mitigate its impact on increasing spending on pensions.
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