Spanish pension system: Population aging and immigration policy.

There is a widespread consensus in the literature that, as a consequence of the demographic transition, the current Spanish pension systemwill become unsustainable in the decades coming. In this article we evaluate the sustainability of the contributory pension sub-system, taking into account the demographic projections by the Spanish Statistical Office (INE). A baseline scenario is projected as well as several reforms are simulated, focusing on: (i) an immigration policy, (ii) changes in the way of adjusting the pensions and (iii) increase of the legal age of retirement up to 68. Themain results are the following. The current systemwill not incur deficits until 2022, fromthis point onwards deficits will begin to be accumulated. The expenditure on pensions in terms of GDP will increased from 8.3% in 2009 to 17.0% in 2049. An immigration policy –aimed at foreign young people– would help, but would not ensure the long-term sustainability of the current system. A policy that combines pension growth at a pace lower than productivity growth and extends the legal age of retirement up to 68 would give solvency to the system beyond 2028.