The Spanish pension system faces a monumental challenge. The government has recently admitted to a historic debt of €126 billion in the social security system, an alarming 7.8% of Spain’s Gross Domestic Product (GDP). This staggering sum is the result of over three decades of outstanding payments to the state. While the government confirms the deficit, it attributes the blame to a series of multi-billion-euro loans taken out by successive governments since the 1990s. At the same time, the current executive defends its model of direct capital transfers to cover pension expenses not financed by social contributions.
Historical Debt Burden: A Look Behind the Scenes
The confirmation of this immense debt came in a parliamentary response to a request from the Popular Group in Congress. Alberto Núñez Feijóo’s party had sought explanations for a recent report by the Court of Accounts, which warned of a negative net worth of €98.526 billion in social security at the end of 2023, highlighting that the system’s own funds were insufficient to cover expenditures, leading to significant imbalances.
The Court of Accounts report quantifies the cumulative social security debt to the state at an impressive €116.16641 billion. Of this, €98.99776 billion pertained to the period between 2017 and 2023, while an additional €17.16865 billion was granted in the 1990s to finance outstanding Insalud obligations. With an additional loan of over €10 billion disbursed in 2024, the total debt amounts to a staggering €126.1702 billion.
Loan Traps and Eurostat Criteria: The Government’s Argument
The government argues that the past practice of instrumentalizing social security funding through loans is losing its justification. While this may ensure budgetary sustainability, it increases systemic debt. It refers to Eurostat criteria, which state that financing through loans for entities with negative net worth, as is the case with social security, is insufficient. Instead, capital transfers are deemed the most appropriate instrument for such financing.
Despite these arguments and after more than three decades of payment defaults, the executive considers it “justifiable to face the definitive reorganization of social security.” However, concrete details on the planned accounting overhaul remain vague. The Court of Accounts’ report meticulously details the history of state loans since 1992, criticizing that none of these loans have been repaid, despite 31 years having passed since the first one was granted. Those without a fixed term remain outstanding, while fixed-term loans have been systematically extended.
Another controversial detail is the use of the “Pension Piggy Bank” (Fondo de Reserva de la Seguridad Social, FRSS). The Court of Accounts noted that whenever social security had sufficient financial capacity, these funds were used to realize FRSS foundations. This reserve fund once amounted to €67 billion before the PP government began to deplete it to manage extraordinary pension payments. Thanks to revenues from recent social contribution increases, intended to finance the baby boomer macro-generation, the fund has now surpassed the €10 billion mark again.
AIReF Audit and Political Maneuvers
The government blames the loans for social security’s negative net worth and continues to defend direct transfers, which, while moving taxpayer money from one administration to another, do not affect overall debt as they are internal financial operations. Nevertheless, the volume of these transfers in recent years has been so immense that they account for more than 80% of the increase in public debt since 2010. This underscores the growing financing needs of a system increasingly reliant on external funds.
The debate is further fueled by the government’s interference in the independent fiscal authority AIReF’s review of the recent pension reform’s impact. Earlier this year, the government passed a decree stipulating that AIReF should consider these fiscal deviations as income for the pension system – an accounting “makeup maneuver” intended to inflate the revenue side of the balance sheet, which was met with disapproval in Brussels. Consequently, the Ministry of Social Security was forced to change these criteria, remove transfers from the equation, and request a new AIReF assessment. This occurred despite the supervisory body’s technicians not having considered all transfers in their initial audit, which concluded that no new adjustments to the system were necessary.
This week, the Minister for Social Security, Elma Saiz, defended the Toledo Pact at the Menéndez Pelayo International University (UIMP) seminar in Santander as “one of the great political agreements of Spanish democracy.” She emphasized its effectiveness in ensuring legitimacy, coherence, and a sustainable future for the pension system. Saiz also took the opportunity to announce the introduction of INTegraSS, a new long-term pension expenditure forecasting tool that will serve as a simulator for future reforms.
