Spanish Social Security taps into Reserve Fund to pay Contributors
September 4, 2012
By LUIS MIRANDA | THE REAL AGENDA | SEPTEMBER 4, 2012
The looting of the Spanish Pension system has officially begun as the country’s Social Security Administration announced that it has taken money from the program’s prevention fund to face its obligations to millions of life-long contributors.
The government led by Mariano Rajoy also said it will call the Toledo Pact to agree on measures aimed at effectively delaying the retirement age and pass other measures to make the Social Security system self-sustainable. As of now, the Social Security Administration has taken 3,400 million euros from the prevention fund, which is now left with only 400 million euros.
Social Security was, for the first time ever, obligated to cash in most of the fund to pay for pensions last July. The order to subtract the money was given on July 4th and 24th. With these payments, the reserve, which is fed with surplus to mutual contributions has been reduced to 1/8 of its original amount.
Besides the prevention fund, the Social Security Administration of Spain has a reserve fund endowed with more than 67,000 million euros to address its expenses.
In August, the Social Security system registered an average decline of 136,762 members from July, now standing at 16,895,977 members who were employed at the end of the month, said the Ministry of Employment and Social Security. On the other hand, the number of pensioners rose to 8,122 million. The ratio of Social Security members and pensioners is two to one, which highlights the difficult financial balance of the public pension system.
The Secretary of State for Social Security, Tomás Burgos, has announced that soon the Toledo Pact will meet to agree on measures to balance the finances of Social Security. As it happens in other developed countries the Social Security system in Spain suffers from mismanagement and looting through risky investments and divestment of funds that have taken place over decades.
Burgos has expressed concern about the impact that an increase in the amount contributed to the Social Security accounts would have, but stressed that the system “is ready” to take IPC deviations.
“We are concerned,” he added, as each tenth of a hypothetical deviation “is equivalent to 200 million euros and that means an extra effort that falls within the norm in the system”, he said.
Regarding the Social Security membership, which has fallen by 136,762 people in August, though negative, it is considered to be placed in the context of “adequate” which right now is seen as “difficult”. “I never expected a positive outcome in August” due to the end of the contracts for the summer placement jobs.
In annual terms, the number of contributors to the Social Security system decreased in August by 604,541 people (-3.45%), about half of the drop in August 2009, with 1,136,246 workers (-5.94%).
In the Special Scheme for Autonomous workers, the rate of change fell by 1.44%, less than 44,504 people, although the total number of entrepreneurs remains above three million. Finally, the number of male members reached 9,128,746 last month, while female membership stood at 7,767,231.