The public pension system is not going through its best moment. Added to the depletion of the so-called “pension piggy bank” is now the negative diagnosis by the European Commission and renowned economists, who consider it financially unfeasible to link pension increases to the CPI. Given such a panorama of crisis in the public system, the possibility of complementing the benefit with the benefits that can be obtained from acquiring physical gold becomes more relevant.
We have already devoted several posts on this blog to analyzing the crisis in the public pension system and proposing the alternative or complement to physical gold, to maintain purchasing power once the retirement age has been reached.
The latest developments only confirm the need for citizens to adopt decisions in this regard, before it is too late.
The Pension Crisis
According to Brussels, our country is among the ten that suffer from imbalances and that have not made any progress in relation to the sustainability of pensions .
In particular, the Commission is seriously concerned about the measures proposed by the Government to permanently re-link pensions to the Consumer Price Index (CPI) and decouple initial pension levels from changes in life expectancy.
“In the absence of adequate compensatory measures, it would increase pension spending significantly in the medium and long term and worsen intergenerational equity ,” according to the report.
The European Commission maintains that the indexation of pensions would increase spending on this item by 4% of GDP by the year 2050 , which would be impossible for the Social Security fund to bear.
Impossible To Link Them To The CPI
Indeed, the indexation of pensions to the CPI is financially unsustainable. As the economist Juan Ramón Rallo explains in El Confidencial , the Social Security system is exposed to a very important demographic imbalance in the medium-long term.
According to Rallo, the problem is that the decision of the Pact of Toledo to eliminate the so-called Pension Revaluation Index (IRP) , introduced in the 2013 reform, has been “one of the greatest acts of economic irresponsibility” .
This index was a budgetary restriction that established that, as long as the system’s expenses are above its income, pensions cannot be revalued more than 0.25% per year .
If, on the other hand, income exceeds expenses, pensions will be increased as necessary to reduce the surplus to zero.
According To Rallo:
“The magnitude of the financial hole in the pension system is such that no minimally reasonable tax proposal is going to be able to cover it . “
The “Piggy Bank Of Pensions”, Under Minimum
As if that were not enough, the Social Security Reserve Fund , known as the “pension piggy bank”, has been progressively depleted (see graph), going from the more than 66,000 million euros it had in 2011 to just over 2,000 last year .
The fund has survived since 2017 on the basis of loans granted by the Ministry of Finance, but without a thorough reform of the system, it will become unfeasible.
Possible Solutions
Among the solutions proposed by the supervisor would be to increase the retirement age again (going from the current 62.7 years to 67 would serve to correct more than half of the problem) or even link it to life expectancy.
This last system is already used in countries such as Italy, Portugal, Denmark and Finland.
Physical Gold, The Ideal Com plement
While the Toledo Pact meets to face a thorough reform of the system, citizens are increasingly concerned about the possible impact on their quality of life and purchasing power of a deterioration of the public pension system.
Faced with this situation, there are various alternatives and complements, such as private pension systems which, with few exceptions, have not proven to be a true solution either.
In countries like Germany, Italy or France, physical gold appears as a natural complement to the public pension system. In Germany, the government’s decision to lower the maximum amount to buy gold without identifying oneself to 1,000 euros since January 1st caused an avalanche of buyers in precious metals shops during the last days of December.