90% of the pension fund has been invested in public debt
In 2008, the fund barely covered 55% of the country’s debt
Alert before the thinning of the Social Security reserve
The relaxation of the risk premium is insufficient: the interest is 5.11%
In the long term, analysts interpret that the tunnel is narrowing: the Spanish Social Security Reserve Fund empties by forced marches. These are the consequences of the country’s high public debt. As much as the risk premium makes efforts to relax, the Spanish 10-year bond was still registering yesterday rates of 5.11%, extraordinarily high …
Last year, the Executive of Mariano Rajoy had to invest 89.6% of the 65,000 million euros of the Social Security fund to cover the country’s public debt . And that had never happened. The fact is that such a situation is depleting the reserves of Social Security, one of the major problems facing the country’s economy in the long term. With these reserves, pensions are paid. And if there are no reservations, there are no pensions.
“In 2040,” says Alvaro Monterde, social security expert at March JLT, “Social Security benefits will not be anywhere near now.” Before, the maximum pension could reach 85% or 90% of the In 2040, the maximum pension will be between 1,000 and 1,500 euros per month. ”
The Wall Street Journal yesterday echoed the problem, using the figures that the Social Security department has offered in recent days. In November, the government withdrew 4 billion from the reserve fund: it was the second time in history that the public bank was on the verge of bankruptcy. The first time had been registered a couple of months before, when the Executive had had to collect another 3,000 million from the fund, in that case to cover needs that were never specified. Both withdrawals exhausted the annual legal limit, so the Government had to raise it temporarily.
Many readers will remember it. In those months there was talk of an imminent rescue . Something that, in reality, today has not occurred. In fact, the economic analysts are divided: some interpret that this rescue will not be necessary, given the corrective tendency that the main economic and financial indicators are taking. The risk premium, which had reached 638 points in mid-July, has been relaxed to the current 360 points.
These are relatively comforting data, but they are still very serious. The public debt absorbs a good part of the fiscal and financial adjustments that are taking place in the country. This is where the rest of the experts, those who consider that the Executive of Rajoy has to ask the rescue to Brussels. They think that it will be then when the risk premium falls back in a convincing and definitive way, to be below 300 points.
The situation is similar in many cases. There have been many countries that have been covered before future eventualities. In the years prior to 2008 – date of the beginning of the current crisis – Spain, Finland and France generated surpluses and strengthened their pension reserve fund. Thus, they were covered for the darkest days. The fact is that those bad times have arrived. And apparently, to stay for a long season.
As soon as the crisis took shape, many of those countries used those reserves to cover contingencies, including the interest rates that treasury bonds must pay. Ireland, for example, used a good part of its fund to invest in shares of nationalized banks and government debt, an intervention in which foreign investors would never enter.
Something similar has happened up to now in the Spanish case. For much of 2012, international investors have turned their backs on Spanish debt, which has had to be financed through national contributions. In the case of the Social Security reserve, its contribution has been increasingly high.
In 2008, the fund barely covered 55% of the country’s debt. Last year, 90% of the fund has already been reached. While fund managers say the reserve has resources for the long term, skeptics frown. The latter have reasons to distrust: the rate of unemployment gallops unchecked, hovering around 25%, the population ages and the pyramid grows by its upper section and hardly create new jobs. It is estimated that there are currently two contributors for each pensioner, far from the recommended four contributors.
Related ‘Der Spiegel’ accuses Rajoy of “looting” the reserve fund of pensions to avoid the rescue Báñez: “We will use the Reserve Fund when it is necessary to pay pensions” The Government does not rule out using reserves again to pay pensions Social Security uses for the first time the prevention fund to pay pensions