Gauranteeing the future of retirement funds relies on more than cutting back pension checks. There are other factors that the government should employ to increase how federal retirement system makes money. The Social Security system has a reserve fund of 60 billion euros that it can utilize when current social security contributions and capital investment returns do not provide enough revenue to pay retired workers and the system operates at a deficit.
Dipping into this reserve fund avoids resorting to national aid to ensure that people get their retirement checks. It is important to make sure that the system can earn enough money going forward. Right now 97% of the system's portfolio is invested in Spanish national debt, which is a major risk.
Spain's social security reserve fund is the only one of its kind in the world to invest in almost all Spanish treasuries and not have a professional investment management team. In 2010 the fund tried to modify a law to allow part of the reserve fund to be invested in stocks and managed by professionals, but that attempt failed and there have been no others.
The bill was buried when the Peoples' Party government vetoed it in 2010 (they were the opposing party then) for political reasons. The party was ideologically opposed to investing social security fund money in equities.
The potential to invest part of the reserve fund in international equities and to improve the fund?s management could triple the fund's annual yields. According to the experts, the 7 billion euros that the government had to take from the reserve fund in 2012 to square the system's accounts could have been recuperated if the fund had been managed professionally.
Ensuring that the social security system stays afloat will require efforts in various parts of the system. Lowing retirement check amounts is not enough. Even though her party rejected a bill proposing a strategy to invest part of the pension fund in equities, Fátima Báñez should exhume the bill and back it until both parties can agree to pass it.
