How right Serrat was: "We all have an old man on us"!
Are you really aware that if the average life expectancy is 83 years (and increasing) you are going to be a retired person for a minimum period of 17/20 years during which you are going to have to live off your pension , and do you have to entrust that pension to the government of the day?
It is paradoxical that this question begins to haunt us all, precisely as we approach retirement age, but if we begin to address the problem much earlier, and even from the moment we enter the job market, we could achieve a much more fruitful result at the beginning of our passive work situation.
When I spoke to my father about his imminent retirement, he used a very short but forceful phrase: “As you see me, you will see yourself.” That profound reflection had a flaw: it was not entirely correct. Let me explain: for him, reaching retirement meant that he had an income guaranteed in advance that would allow him to live, let's say, with some comfort, and that the same would happen to his children and grandchildren.
This guarantee was provided by the current pension system based on the principle of solidarity or distribution so that the contributions of people who work today generate sufficient funds for Social Security to pay pensions.
He said that it was not entirely correct, because in order for the aforementioned guarantee to be fulfilled, two basic principles had to be met:
- Maintain unemployment rates between 4%-6%
- Present a population pyramid with a base wider than the top.
For years, the unemployment rate has not decreased from 15%, the aging of the population is accelerating, and in addition, this distrust increases with the contradictory messages that political parties send about the security of the public pension system.
What has been said clearly indicates that the system in which my father trusted is not going to maintain itself over time. It is clearly an unsustainable system, and we cannot hope to give it sustainability, given the increasingly lower contributions in number and amount, to give it sustainability via increased taxes.
It is already a clear symptom when the Bank of Spain itself advocates abandoning the aforementioned distribution system, and moving to the “Austrian backpack” model, that is, that the monthly contribution that the company makes as a contribution for that worker, is dedicated to that worker, so that these contributions accumulate in his “backpack” until the moment of retirement, and if he changes job he takes them with him (which would encourage job mobility), or if he is fired, the compensation he would correspond to him would be the contents accumulated in his backpack. This model seems to be valid for the sustainability of pensions, but its detractors argue that on the one hand it could mean an increase in labor costs, and on the other hand, for active people, if they are fired, they would have compensation. that they carried in their backpack, without distinguishing between permanent or temporary.
Reading the previous paragraphs leads us, given the uncertainty of the amount of our future pensions, to the obligation to resort to different savings/capitalization systems.
The debate intensifies when the main product that more or less served our purposes, Pension Plans, also lose attractiveness year after year.
Let me explain: we cannot forget that the main differentiating element that Pension Plans have compared to other pension products is the tax advantage provided by the tax deduction of contributions, directly from the Personal Income Tax Tax Base, but let no one forget that It is neither more nor less a deferral in the time of their taxation, since at the time of retirement when we receive the accumulated funds, either in the form of income or in the form of capital, they will be taxed as Net Earned Income. But in addition, this advantage tends to disappear, if until a few years ago, the maximum amount of the deduction was in general 8,000 euros (it could be increased in certain cases), in 2021 it has been limited to 2,000 euros, and for 2022 it is set at 1,500 euros.
So what alternatives do we have?… (to be continued)
