A new reform is being prepared that would lower current and future pensions for retired Spaniards. The severity of pension reductions will depend on how quickly the reform is put into effect. The public should start planning now so that it can be prepared to make adjustments for income and spending.
It is certain that the nominal amount of current benefits will not be cut -- nobody sitting on the team responsible for this reform wants to cross that line -- but pensions will barely increase over time and as a result retirees will lose purchasing power as pension increases will no longer correlate directly with a higher Consumer Price Index.
The team is also factoring in life expetancy in their calculations of how much to price pensions, which will reduce monthly pension checks to adjust for people living longer. It hasn't been decided yet whether the reform will apply the sustainability factor at the beginning of next year or in 2019. Both options have their consequences. If 2014 is chosen, the impact on retirees will be sharper. The Social Security system is still dealing with a budget imbalance and could have to turn to its reserve fund in order to have enough cash to pay pensions.
Delaying the reform until 2019 will surely eat up all the Social Security system's savings. A new reform, given the level of unemployment and falling Social Security contributions, is inevitable. The question is: do we need greater structural changes that overhaul our Social Security system to look more like the one used in Switzerland? Do we have to lower pensions directly? Why are we not considering strategies that countries around us practice?
Ultimately, the pension reform discussion is not transparent. A team of experts is being used to explain to citizens in technical terms why their pensions need to be cut giving due consideration to reasonable alternatives.
