- The Independent Authority for Fiscal Responsibility (AIReF) publishes the First Report on the Pension Expenditure Rule and the Second Opinion on the Long-term Sustainability of the General Government, thus offering an independent and comprehensive analysis of the sustainability of public finances
- In the report, the AIReF notes that the European Commission’s forecasts, updated with data from 2022 and 2023, place pension expenditure at 14.6% between 2022 and 2050 and estimate that revenue measures will amount to 1.4%, thus complying with the expenditure rule set by the Government, with expenditure on pensions net of revenue measures at 13.2% on average for 2022-2050
- However, it warns that the sustainability of the system has not improved and estimates growth in pension expenditure of 3.4 points of GDP until 2050, compared with the 3 percentage points estimated two years ago
- AIReF detects significant methodological weaknesses in the definition of the expenditure rule, as it is influenced by the time at which it is calculated, shows excessive sensitivity to changes and offers a partial view of sustainability
- AIReF considers that it does not constitute an indicator of sustainability and diminishes its capacity for supervision and its independence
- Faced with this limitation, it sees a need for a comprehensive overview of public finances, as contained in the second Opinion on Sustainability, which takes into account the effect of the ageing population on all revenue and expenditure items, not only on pensions, and also other fundamental challenges such as climate change and defence expenditure
- The Opinion shows the fiscal vulnerability of the Spanish economy, with public debt rising in the scenario at constant policies, reaching 129% of GDP by 2050 and 181% of GDP by 2070
- AIReF also presents an alternative scenario in which the fiscal rules are complied with, which demonstrates the need to make a structural adjustment beyond that committed to by the Government, and analyses the effect of raising defence expenditure
The Independent Authority for Fiscal Responsibility (AIReF) today presented the First Report on the Pension Expenditure Rule and the Second Opinion on the Long-term Sustainability of the General Government (GG), thus offering an independent and comprehensive analysis of the sustainability of public finances that is intended to be useful for decision-making. In the report, AIReF notes compliance with the pension expenditure rule, but warns that the sustainability of the system has not improved compared with the forecasts published in 2023. In fact, AIReF estimates average growth in pension expenditure of 3.4 points of GDP until 2050, compared with the 3 points estimated two years ago. At the press briefing, the President of AIReF, Cristina Herrero, stressed that the expenditure rule cannot be considered an adequate indicator of sustainability and diminishes the supervision and independence of AIReF.
According to prevailing legislation, AIReF must report every three years and before April 1st of the corresponding year on the estimated impact of the measures adopted in the pension system as from 2020. It only has to estimate the impact of the revenue measures on the average for 2022-2050 and check whether the estimated expenditure for the same year in the European Commission’s Ageing Report minus the impact of the measures exceeds 13.3% of GDP. The Royal Decree approved in February 2025 specified that AIReF should take into account pension expenditure updated with the data observed, as well as the revenue measures that would have to be taken into account to calculate the expenditure rule, as established in the Social Security Law.
AIReF detects significant weaknesses in the definition of the rule, which is strongly influenced by the time at which it is calculated, shows excessive sensitivity to changes and offers a partial view of sustainability by referring exclusively to the Social Security system. According to AIReF, in no case can it be considered an adequate indicator of the sustainability of the pension system or of the public sector as a whole to sustain net expenditure around a quantitative reference (13.3%) agreed between Spain and the EU and not anchored in the principles of sustainability, sufficiency and intra- and inter-generational equity that should guide the design of a pension system. Furthermore, AIReF considers that this rule diminishes its supervisory capacity and its independence.
Accordingly, it points out that this report cannot replace a complete and detailed analysis of the implications of ageing on the forecast for pension expenditure and of the impact of the reform measures implemented in terms of the debt path (sustainability), sufficiency and inter-generational equity. Thus, it also presents the update of its Opinion on the Long-term Sustainability of the GG, in which it addresses sustainability from a comprehensive and independent perspective as opposed to the partial and limited approach of the pension expenditure rule.
In the Report on the Expenditure Rule, AIReF, taking the demographic and macroeconomic assumptions of the Ageing Report, estimates that the average annual impact of the measures adopted from 2020 to strengthen the revenue of the public pension system is 1.4% of GDP in the period 2022-2050. The measures considered in this estimate are the Intergenerational Equity Mechanism (MEI), the evolution of the maximum contribution bases, the additional solidarity contribution, the reform of the Special Regime for Self-Employed Workers (RETA), the transfers from the State to the Social Security system to bolster the revenue of the public pension system, and the permanent or structural impact on the system’s revenue of increases in the minimum wage and labour measures.
Although the average annual impact of the revenue measures is 0.3 points lower than the 1.7% of GDP – the reference value set in the pension regulations – the average gross public expenditure on pensions in the period 2022-2050 in the latest Ageing Report, updated with the latest observed data, stands at 14.6% of GDP, 0.4 points below the limit of 15% of GDP. The successive upward revisions in the level of GDP made by the National Statistics Institute go a long way to explaining the downward revision in the level of expected expenditure in that period. AIReF’s own estimates, which are published in the Opinion accompanying this Report, place average expenditure at a somewhat lower level, 14.4% of GDP in the same period.
Accordingly, AIReF notes that the limit set in the Second Additional Provision of the 2023 pension regulation has not been exceeded, with pension expenditure net of revenue measures resulting in 13.2% of GDP on average for the period 2022-2050. However, in dynamic terms, AIReF does not see an improvement in the public pension system. Specifically, AIReF’s 2023 forecasts assumed an increase of 3 points of GDP in pension expenditure between 2022 and 2050, rising from 13.2% of GDP in 2022 to 16.2% of GDP in 2050. At present, AIReF’s forecasts assume an increase in expenditure of 3.4 points of GDP between 2022 and 2050, rising from 12.7% in 2022 to 16.1% of GDP in 2050. As a result, the pressure of pension expenditure is 0.4 points higher.
In this regard, the AIReF warns that this dynamic, together with the expected evolution of contributions, means that throughout the projection horizon it will be necessary to increase transfers from the rest of the Social Security Funds (SSFs) or from the Central Government (CG) by 2.4 points of GDP. This increase, in the absence of measures, will mean less revenue available for the financing of other expenditure policies or a need to resort to borrowing, which seems difficult to reconcile with the demands and commitments stemming from the European and national fiscal frameworks.
Taking into account the weaknesses described in the definition and implementation of the pension expenditure rule, AIReF makes a recommendation to the Ministry of Inclusion, Social Security and Migration that, in the process of adapting the national fiscal framework to the new European framework, it should integrate the pension expenditure rule, aligning it with the targets and deadlines of both the European and national fiscal frameworks.
Opinion on Long-term Sustainability
In its Opinion on Sustainability, AIReF notes the vulnerability of the Spanish economy. AIReF considers a baseline scenario at constant policies that is based on demographic forecasts that reduce the working-age population to 36 million people by 2050, despite the incorporation of average annual migratory flows of 288,000 people. Hence, average GDP growth would stand at 1.3% in the long term, even assuming apparent labour productivity growth of 1.1%.
In this scenario, AIReF estimates a headline deficit that, after stabilising at slightly below 3%, begins to increase in the 2030s, reaching 7% of GDP by 2050. This deterioration is due, on the one hand, to the increase in expenditure associated with ageing and, on the other, to the increase in the interest burden. As from 2050, the primary balance begins to improve as the pressure of ageing abates, but the global deficit continues to grow until it reaches 7.7% of GDP by 2070. The weight of revenue increases by 2.8 points relative to its weight of GDP until 2050, with its rate of growth falling from then on. Regarding expenditure, growth of 6.5 points is estimated until 2050 due to the increase in expenditure on pensions, health and interest. As from 2050, the slowdown in expenditure on pensions fails to offset the increase in expenditure on interest and care, which leads to an additional increase of 1.2 points.
Specifically, expenditure on pensions rises to 16.1% in 2050, with year-on-year growth of over 4% between 2030 and 2050. AIReF performs an analysis of the sufficiency, equity and contributory nature of the pension system, as well as of the reforms to the pension system between 2021 and 2023, which have increased expenditure, the generosity rate and the profitability of the system. In turn, healthcare expenditure increases by 1.4 points of GDP until 2050 and by an additional 0.1 points until 2070, while expenditure on long-term care grows by 0.6 points in the same period and by an additional 0.3 points until 2070. AIReF also provides models of expenditure on education, the weight of which is reduced by the evolution of the population to reach 3.5% of GDP in 2050, while expenditure on unemployment is maintained at around 1.2% of GDP.
In this context, AIReF estimates a marked upward path for public debt due to the ageing population, reaching a weight of 129% of GDP by 2050 and 181% of GDP by 2070.
AIReF also considers an alternative scenario in line with the new European fiscal framework, with an adjustment of 3.12 points of GDP distributed in four fiscal plans of four years each. This adjustment would reduce public debt to 62% of GDP by 2050 and 52% of GDP by 2070.
To mitigate the short-term impact of increased defence expenditure, the Commission has proposed to activate the national escape clause introduced by the new EU fiscal framework, allowing this increase in expenditure to be accommodated without compromising compliance with the First MTP. AIReF has performed a theoretical fiscal exercise of what the activation would involve and concludes that for every 0.5 points of GDP increase in defence expenditure between 2025-2028, an additional fiscal cutback of 0.13 points of GDP would be necessary in the period 2029-2032 to place debt on a downward path.
According to AIReF, both the baseline scenario and the alternative scenario once again highlight the need to structure a realistic and credible medium-term fiscal strategy that guarantees the sustainability of public finances. In this regard, AIReF considers that the transposition of the new European framework into national regulations represents an excellent opportunity to place sustainability at the heart of the framework and ensure effective, realistic and credible medium-term budgetary planning. AIReF considers that the reform should not be carried out solely to comply with the minimum requirements, but in the conviction that a robust national fiscal framework would be beneficial. Furthermore, this new fiscal framework should suitably integrate a reformulation of the expenditure rule for pensions, adapting this rule to the targets and deadlines of the European and national fiscal frameworks.
