OECD Urges Deep Pension Reforms as Spain Faces Demographic and Economic Challenges

The Organization for Economic Cooperation and Development (OECD) has issued a comprehensive warning to Spain regarding the long-term sustainability of its public pension system given the country’s demographic trajectory and economic context. Despite Spain's strong GDP growth, outstripping many European peers, the OECD report underscores significant fiscal vulnerabilities tied to an aging population and low fertility rates.

According to the OECD, pension expenditures in Spain are projected to rise by 3.2 percentage points of GDP from 2023 to 2050 due to demographic pressures. This increase poses a serious threat to the pension system's financial balance, even after recent reforms such as raising the retirement age and adjusting self-employed workers' regulations. The organization recommends further measures including incorporating life expectancy adjustments in benefit calculations and broadening the period over which pension rights are calculated to better ensure sustainability.

The OECD explicitly warns that current policies are insufficient, advocating for potential cuts in pension benefits to prevent widening funding gaps. Spain's tax-to-GDP ratio stood at 37.3% in 2023, above the OECD average, yet consumption tax revenues remain low, prompting calls for comprehensive tax reform to improve fiscal sustainability without harming employment.

Labor market integration, especially for immigrants, is highlighted as vital to counterbalance demographic decline. The workforce participation rate among older workers remains low, and the OECD urges incentives for longer workforce retention and expanded adult education. Challenges faced by small and medium-sized enterprises in productivity and financing also feature in the analysis.

Spain's economy shows positive signs such as improving public finances and banking sector resilience, yet the OECD stresses credible fiscal policies are crucial amid ongoing risks, including climate change impacts and housing shortages.

Economy Minister Carlos Cuerpo reaffirmed Spain’s commitment to European fiscal rules and noted mechanisms for automatic contribution adjustments to sustain pensions, while OECD Secretary-General Mathias Cormann lauded Spain’s ambitious reforms as exemplary for other countries.

In sum, the OECD's detailed report emphasizes that without profound pension reforms combined with fiscal and labor market adjustments, Spain’s economic progress and social protection systems could face heightened pressures over the coming decades.