Spain would need to raise the retirement age to 73 in order to restore the worker-to-pensioner ratio it enjoyed half a century ago. That is one of the key findings of Pensions in Spain: A Critical Analysis and Proposals for Reform. This report, published by CEU CEFAS, warns that the public pension system is facing mounting pressure from population ageing, a low birth rate, rising expenditure and the structural deficit of the Social Security system.
The report, coordinated by Alejandro Macarrón from CEU CEFAS’s Social Studies and Analysis Department, argues that Spain’s pay-as-you-go pension model was designed for a very different demographic reality: more workers per retiree, lower life expectancy and shorter retirement periods. Today, the country faces the opposite scenario: persistently low fertility rates, rapid population ageing, longer life expectancy, wage growth lagging behind pension growth, limited private savings and a Social Security system that has been running a structural deficit since 2011.
According to the report, the most commonly proposed solutions are not sufficient on their own. Delaying retirement can ease pressure on the system, but it does not solve the underlying problem. Immigration, meanwhile, cannot guarantee the long-term sustainability of pensions. And while increasing private savings is both desirable and necessary, it cannot replace the need for a sufficiently large workforce to generate economic output, contribute to the system and provide care for an ageing population.
The report argues that raising the retirement age is necessary but ultimately insufficient. In a context of persistently low fertility, each additional year of delayed retirement only provides temporary relief, as the positive effect on Social Security finances is largely exhausted within three years unless the demographic base of the system is renewed through a higher birth rate.
“The challenge facing Spain’s pension system is not ideological but mathematical: there are fewer and fewer workers supporting each pensioner, and piecemeal measures merely buy time unless the demographic roots of the problem are addressed,” says Alejandro Macarrón, Head of Social Studies and Analysis at CEU CEFAS.
Pensions rising faster than wages
The report highlights a growing divergence between pension and wage growth. Between 2010 and 2025, average salaries in Spain increased by approximately 22–25%, remaining below cumulative inflation, while average pensions rose by between 65% and 70%.
As a result, pensions have maintained a highly favourable trajectory compared with earnings among the working population.
The report also notes that Spain has one of the highest replacement rates in Europe, meaning that the gap between an individual’s final salary and their initial retirement pension is among the smallest on the continent.
Social Security deficit at the heart of Spain’s fiscal imbalance
According to the report, the Social Security deficit is one of the main drivers of Spain’s broader budgetary imbalance. In 2023, the country devoted 11.2% of GDP to retirement pensions, according to Eurostat figures—equivalent to more than one in every ten euros generated by the Spanish economy.
The system has been in structural deficit since 2011. In 2024, the direct operating deficit of the Social Security Managing Entities and Common Services reached €33.9 billion. When additional components of the system are taken into account, estimates cited in the report place the total deficit at €69.8 billion, according to FEDEA—a figure exceeding Spain’s overall public deficit for that year.
The report therefore argues that, without the Social Security shortfall—which is currently financed through taxation and public borrowing—Spain would have ended 2024 with a fiscal surplus.
Neither immigration nor private savings can solve the problem alone
The report challenges the idea that immigration by itself can offset population ageing and sustain the pension system. In its current form, it argues, immigration does not resolve the structural challenges facing the system, citing factors such as lower average qualifications, lower contribution bases, lower employment rates, higher unemployment and additional pressures on public services, housing and the labour market.
The study advocates strengthening private savings, occupational pension schemes and individual capitalisation mechanisms. These instruments offer benefits both for individuals—including greater legal certainty, inheritance of remaining savings and investment returns—and for the wider economy, by creating pools of capital that can be invested in businesses and productive assets.
To finance the transition from a predominantly public pension system to a mixed public-private model, the report highlights the need to reduce non-essential public spending and implement reforms capable of generating stronger economic growth.
However, it introduces an important caveat: even a pension system built largely on private savings would not be immune to the effects of a declining birth rate. Retirees’ living standards depend not only on accumulated financial assets but also on the existence of a sufficiently large workforce capable of producing goods, delivering services and caring for an ageing population.
Towards a mixed pension model: more savings, greater flexibility and support for families
Among its recommendations, the report proposes moving towards a mixed pension system in which the public pension provides a basic safety net, while individual savings and employer-sponsored pension schemes play a larger role.
It also calls for the gradual alignment of the effective retirement age with increases in both overall life expectancy and healthy life expectancy, greater incentives for those who remain in work longer, and more flexible arrangements allowing pensioners to continue working. Other proposals include calculating pensions on the basis of an individual’s entire contribution history, reviewing survivor benefits to focus support on those most in need, and restoring tax incentives for retirement savings.
As part of its response to Spain’s demographic challenges, the report suggests linking pension levels to the number of children an individual has raised, regardless of gender and for equal contribution records, in recognition of families’ contribution to the future sustainability of the system and the economic costs associated with raising children. It also recommends phasing out survivor pensions where the surviving spouse has an independent income, while increasing support for families with larger numbers of children, reflecting the original rationale behind such benefits: providing financial security in old age for widows who had foregone paid employment in order to raise children.
“The choice is not whether to reform the pension system, but whether to do so in an orderly manner today or be forced into far more painful adjustments later,” says Alejandro Macarrón.
Finally, the report stresses the importance of fostering a better public understanding of the challenges facing Spain’s pension system and the reforms needed to ensure its long-term viability. It also highlights the need to encourage a higher birth rate and greater family stability—not only for the personal wellbeing of individuals, but also to safeguard the future sustainability of pensions and Spanish society as a whole.