The President of the Independent Authority for Fiscal Responsibility (AIReF), Cristina Herrero, participated today in the 11th Ibercaja Pension Conference, titled “Geopolitics and Pensions: Will the New Global Political and Military Environment Affect the Generosity of the Public System?” where she advocated a comprehensive view of public finance sustainability in light of the expected increase in pension spending and the requirements to increase defence spending arising from the geopolitical context.
In fact, she argued that defence and pension spending are not the only sources of pressure on public finances, as ageing will also affect items such as healthcare and long-term care. Furthermore, the materialisation of environmental risks and development and social policy commitments are also becoming recurring pressure factors.
She also emphasised the importance of considering the long-term outlook for public revenue to obtain a comprehensive picture and assess the magnitude of the fiscal challenge. According to the President, this combination of factors requires a realistic and credible medium-term fiscal strategy, rather than partial or fragmented approaches to sustainability.
In this regard, she recalled that this is precisely the purpose of the new fiscal governance framework, which seeks to promote compatibility between stability and growth. AIReF shares this approach and understands that sustainability cannot be compartmentalised. Specifically, Cristina Herrero recalled the institution’s critical position on the pension expenditure rule, a rule that focuses on only one area and, moreover, does not guarantee sustainability. She also referred to the national escape clause that allows for increased spending on this item without compromising the fiscal commitments of the First Medium-Term Fiscal-Structural Plan, albeit with effects on the public deficit and debt that will require adjustments in the future.
The Toledo Pact
At the national level, she emphasised the importance of the Toledo Pact agreements, which aim to preserve and enhance the adequacy and generosity of the system. According to Cristina Herrero, the latest reforms, implemented after the Pact Monitoring Committee in 2020, have shown an upward impact on their indicators, primarily due to the elimination of the sustainability factor and the Pension Revaluation Index (IRP). Although measures have also been implemented to contain spending, overall, there has been no progress in strengthening sustainability.
At the same time, the development of supplementary social provision for professionals, businesses and employment is also being addressed under the impetus of the Toledo Pact. In this regard, Cristina Herrero recalled that AIReF has been commissioned to conduct an evaluation of the effectiveness of incentives for these plans. Although the results cannot be anticipated, she pointed out that the data so far indicate difficulties in developing public promotion plans and a certain incipient response, albeit with uneven success in simplified plans. In particular, she highlighted the adoption of the employment plan for the construction sector, which could indicate the capacity to increase savings at lower income levels, as was the aim.
In any case, AIReF notes, on a preliminary basis, that in 2024 gross contributions to employment plans exceeded those to individual plans for the first time, possibly due to the significant difference in the maximum amounts that can be contributed to each. With regard to the tax incentive, she recalled that AIReF had already stated in 2020 that the individual plan incentive did not succeed in prompting long-term savings across the board and proposed its reformulation.
