Behind the promise to fill the pension piggy bank: a circle of debt

The minister in charge of Social Security, Elma Saiz, promised to refill the pension piggy bank with 25,000 million this same decade. Behind that promise – in turn, inherited from José Luis Escrivá – there is a change in the rules of the game and a vicious cycle of debt.

The financial health of pensions is affected and will be under more pressure in the coming decades. This was what the Toledo Pact had planned when it created a Reserve Fund, a piggy bank to dip into when the largest generation in Spanish history, the ‘baby boom’, left the labor market en masse and began to collect their well-deserved pensions.

The difference from its initial conception is that this piggy bank is no longer savings: it is not nourished by the social contributions that are left over – the surplus. This piggy bank has been resurrected through a new contribution that does not generate an additional pension right – the MEI –, depriving a system that has been in deficit for more than a decade of income that is no longer enough. In itself, it is already a greater effort.

What happens now? The pension piggy bank is immersed in a ‘false sense of savings’ within its particular circuit of debt and reinvestment. Money that the system needs is set aside because, effectively, it does not receive the necessary income to meet all its obligations. In exchange, pensions are paid, fattening the snowball of debt.

And what is the money in the piggy bank used for? The profitability that the Reserve Fund intends to generate involves investing that money in… the same public debt that it has already generated. The famous pension piggy bank can be conceived as an oxygen pump to ensure pensions.

Although its operation, going into detail, turns out to be a ‘trompe l’oeil’. The investment portfolio of this lever of an increasingly indebted system is focused solely on State bonds and obligations issued by the Treasury. The Reserve Fund will really be a moral support for the coming decades.