Spain allocates between 35% and 40% of the General State Budget to pay its citizens the corresponding pensions for retirement (60%), widowhood (24%), permanent disability (10%), orphanhood (3%) and others (3%).
In the year 2021, the average pension will be around 1,200 Euros, having increased at a rate of 3% per year during the last 15 years. As a reference, in 2006 the average pension was around €650.
Almost 70% of retirees today live solely and exclusively on their pension.
Pensions have become the mainstay of the so-called welfare system and are politically used as a spearhead to promote social justice.
It was back in the 19th century, in the newly unified Germany of Otto von Bismarck and Wilhelm II, that a mechanism similar to what we know today as the distribution system appeared. Von Bismarck used it as a political tool to win over the working class. During his mandate he established a retirement age of 70 years, when life expectancy was around 45 years. There were very few pensioners and the money collected stayed in the state purse. During the preliminary passage of this measure in Parliament, von Bismarck was asked by the liberal opposition “Mr. Chancellor, are you aware that if this bill goes through, you will make the entire German people dependent for life on the state?” Bismarck’s answer was blunt: “That is precisely my aim”.
In Spain, the starting point of protection policies began with the Commission for Social Reforms (1883), from which a series of ideas and proposals began to emerge and evolve, being especially vindicated during the Franco regime from the 1940s onwards, until 1963, when the Law of Bases of Social Security appeared. Main objective was the implementation of a unitary and integrated model of social protection with a financial basis of distribution, public management and State participation in financing.
The pay-as-you-go system is a social security model based on the collection and redistribution of contributions from current workers to non-working citizens entitled to receive different types of pensions. It is a solidarity-based insurance for old age to which all active workers are obliged to contribute.
It is a system lacking in savings. The income from contributors is not saved and administered for their future retirement, but is automatically handed over to current pensioners.
This makes it a model totally dependent on the demographics of the country, always requiring a high ratio of workers per pensioner, but what is even more worrying, a system sustained by the political decisions of our leaders.
The National Institute of Statistics estimates that by the year 2050 one out of every three Spaniards will be over 65 years old. This means having an aging population and therefore less capacity to sustain the system as we know it today.
The gradual decrease in the number of children per family together with the increase in life expectancy of the population has led to the inevitable decline of a model that is difficult to sustain in the long term.
In 1935 Franklin D. Roosevelt, then president of the United States, established the social security model. The country had an average of 52 workers per pensioner, so it was very easy to convince them of the benefits of the system. In the same way, the incentive for most citizens was very great, since there were many people who, practically without contributing anything, received a pension for life thanks to this new way of redistributing wealth.
Today the average in both the US and Europe is 2 workers for every retiree.
The average pension in Spain stands at €1,245 when the minimum wage for a worker is €1,000
The Social Security reserve fund known as the pension piggy bank had almost €70,000 million saved during the fat cow season.
Currently the piggy bank is not only at zero, but requires recurring loan applications to meet payment obligations.
The situation has become untenable. That security that we were promised has vanished. We have been experiencing a transfer of income from the poorest to the richest, in aggregate terms. That is, from the most productive class to the least productive, with no support greater than the dependence on money coming in from the base of the system, which is very similar to a pyramid scheme.
The most worrying thing is that this situation has discouraged private savings for decades, making the taxpayer believe that his money was kept in a separate account that would serve as sustenance once he retired from the workplace.
Less saving, less investment, less economic and business development, talent drain, etc.
A vicious circle.
We have been direct participants in a fraudulent system. I do not want to debate whether we have done it consciously or unconsciously, whether we are victims or executioners, but we must accept the reality.
Those who talk about intergenerational solidarity should be more aware of the situation in which we find ourselves. To perpetuate the current system is to go against those we precisely say we want to protect: our children and grandchildren.
Let’s take action and take it now!
The delay of the retirement age or the reduction of the replacement rate (lowering the percentage that you will have left of your pension in relation to your last salary) are some of the proposals made by our rulers, which seem insufficient patches in view of the scale of the problem.
The opposite model to the social security system is that of capitalization, which allows current contributions to be saved and invested during the time the citizen is working, and then handed over to him/her at the time of retirement. The worker’s contributions are enjoyed by the worker himself. The higher the contribution, the higher the pension in the future.
At some point we will have to begin this transition, perhaps through a hybrid model combining capitalization and social security. The problem lies in the fact that this transition will surely be very painful, since current taxpayers will see the promises of their rulers truncated, with all that this entails.
This is why private savings will be particularly important during this period.
Education and private savings will be fundamental pillars when facing this new battle that awaits us as a society.
We must recover that philosophy of life based on effort, meritocracy, capital accumulation and wealth creation. The system we know today has perverted us, we have been taught that growth must be based on spending and waste. We have been led to believe that money is created by pressing a button, that it is infinite, that we have to spend it as soon as possible because it loses value over time.
We have really bought into it. We always want more. It’s like a drug.
We want bigger pensions, better public services: better hospitals, better transportation, better education. But have we stopped to think about where the money comes from?
This is how politicians have conquered us. They have achieved what they wanted, to establish themselves in power and live on promises they can never keep.
We must recover the good money, the one that encourages us to save and accumulate wealth. Which allows us to reward the productive because it is so scarce and difficult to obtain that only the truly deserving will have it.
Some talk about going back to gold or silver, but I as always tell you about Bitcoin and the search for true social justice
Article based on the documentary “Neither justice nor social: The public pension system”