On 5 October, Pedro Sánchez called a general election for 29 November, and pensions are once again in the spotlight. One of the most common questions is: is the pension system bankrupt?
This year, Spain has set a new record for its monthly pension bill, at almost €14.5 billion. Its Social Security system, which pays pensions and other benefits, reported its smallest deficit since 2011. But more than 20% of its income comes from the state, its debt to the Treasury is over €136 billion, and the mass retirement of the baby-boom generation has barely begun.
The question is less whether pensions will be paid than who will cover their growing cost.
Can a pay-as-you-go pension system go bust?
Spain’s pension system is pay-as-you-go: today’s contributions pay today’s pensions. There is no individual account in the name of each worker and no fund that can simply run out. The Constitution requires the state to guarantee adequate pensions and update them regularly. If the system falls short, the gap can be covered through state loans or transfers.
Santiago Calvo, professor of quantitative and public economics and deputy director of the Ruth Richardson Centre, says Social Security cannot go bust like a company because behind it stands the state’s ability to raise taxes and issue debt.
The problem is that this shifts the risk onto the state itself. In "El elefante en la habitación" ("The elephant in the room"), the book he co-authored with Daniel Fernández, they describe a "Greek-style" default. Calvo describes it as the scenario in which, after years of plugging the hole with debt, a recession or a spike in interest rates drives up borrowing costs until Spain loses the ability to finance itself at a reasonable cost.
"At that point, the adjustment stops being decided in parliament, with a timetable and gradual steps, and is negotiated with creditors as a condition for a bailout. The biggest budget item is the first to be cut," he warns. In Greece, he recalls, the cuts hit people who were already retired, and the average pension fell from around €1,350 in 2009 to €833 a few years later.
Why the deficit figures differ
In 2025, Social Security closed the year with a deficit of €7.387 billion, according to Spain’s Ministry for Inclusion, Social Security and Migration.
That was 0.4% of GDP, the lowest figure since 2011. Contributions rose by 6.9% in 2025, reaching €176.918 billion. Growth in employment, with the number of registered workers reaching a record high, helped drive the increase.
At the end of July 2026, there were more than 22.5 million workers paying into the system, a national record. Foreign workers accounted for 15.6% of all contributors, and in June there were 2.37 workers per pensioner, a key ratio in a pay-as-you-go scheme.
But the headline deficit includes substantial state support. Of the €232.782 billion collected by Social Security in 2025, €47.815 billion came in the form of transfers from the state, 11% more than the previous year.
Those transfers accounted for 20.5% of income. Some cover benefits intended to be paid through taxes rather than workers’ contributions, including income support and top-ups for minimum pensions.
Fedea, a Spanish economic research institute, uses a broader scope to assess the financial situation of the Social Security system. According to its analysis of the accounts from 2005 to 2025, state transfers to the wider system totalled €61.342 billion in 2025.
Including those transfers, the overall balance would show a deficit of around €8.4 billion, similar in scale to the ministry’s €7.387 billion. Without them, the underlying deficit comes to €69.783 billion, or 4.15% of GDP – roughly ten times the ministry’s figure as a share of GDP.
The two estimates measure different things.
The two estimates measure different things. Part of those transfers pays for benefits that are intended to be tax-funded. In 2024, of the €58.301 billion in transfers, €12.951 billion went on non-contributory benefits — paid to people who do not qualify through contributions — and €15.234 billion on pensions for civil servants.
The biggest share, €27.505 billion, went to cover contributory benefits — those linked to workers’ and employers’ payments into the system. Fedea’s study counts this as a shortfall in contribution income, whereas the ministry’s accounting treats the state transfer covering it as extra income.
The roughly €7 billion deficit is the shortfall left after state transfers under the ministry’s accounting. Fedea’s roughly €70 billion figure excludes transfers and covers a wider system. The debate is over how much spending should be covered by contributions and how much by taxes. Either way, the accounts remain in the red.
Calvo agrees that the two figures "are correct, but answer different questions". The ministry’s figure measures the shortfall in Social Security’s accounts after receiving state transfers.
Fedea’s number compares what the system raises on its own with what it spends, "which is the relevant question when talking about sustainability".
In his view, the official figure also "has a reading problem". In 2025, the accounting deficit fell by about €2.45 billion, while state transfers rose by around €4.86 billion. "Without that extra state contribution, the balance would have worsened." He argues that, as the public sector as a whole remains in deficit, in practice that money comes from new borrowing.
Transfers are not the only route. The state also lends money to Social Security.
From December 2022 to December 2025, the debt increased by €30.001 billion, topping €136 billion. That is more than twice the amount paid into the pension reserve fund over the same period.
Meeting the rules, but facing rising costs
On 29 May, Spain’s independent fiscal watchdog (AIReF) assessed whether pension spending complied with the rule agreed with Brussels~~ (an average of no more than 13.3% of GDP between 2022 and 2050, after deducting new revenue measures)~~. The rule caps average spending between 2022 and 2050 at 13.3% of GDP, after allowing for measures to raise additional revenue. It put the figure at 13.0%, 0.3 percentage points below the threshold.
Gross spending was 14.6% of GDP and the revenue measures shaved 1.6 percentage points off that.
Spain therefore meets the rule because of additional revenue, rather than lower pension costs.
The same study projects that, with no policy changes, public debt would start to rise again from 2035, reaching 123% of GDP in 2050.
It forecasts that three out of every four euros of extra pension spending would come from central government, forcing it to cut spending elsewhere or take on more debt. Meeting the rule and keeping debt under control are, on those figures, two separate goals.
The government’s own model puts average pension spending at around 14% of GDP until 2050, below AIReF’s 14.6%. The difference reflects assumptions about employment, birth rates and immigration.
For Calvo, the country’s vulnerability "increases every year". Spain continues to carry public debt of around 100% of GDP, and pension spending will keep rising with the retirement of the baby-boom generation, reaching 16.4% of GDP in 2050, according to AIReF.
He prefers not to put a date on a Greek-style crisis, because it depends on a trigger no one can foresee, but he sees the period of greatest risk as the next two decades. "What currently separates Spain from Greece is the chance to carry out, in good time and by its own decision, a reform that would otherwise be imposed from outside," he argues.
How much protection does the reserve fund offer?
Spain has introduced an additional payroll contribution to rebuild its pension reserve fund. The levy rises to 1.2% of wages in 2029, and the money cannot be used until 2033.
As of 31 March 2026, the Reserve Fund stood at €15.267 billion, its highest level in a decade. In September, the regular monthly payment alone cost €14.498 billion, meaning the fund could cover just over one month of pension payments.
At the end of 2011, when it peaked, it reached €66.815 billion, equivalent to 6.22% of GDP. It was gradually run down to help pay pensions in subsequent years.
The Reserve Fund was designed to cover temporary mismatches between income and expenditure. Hitting its highest level in ten years says more about how low it fell in the past than about how healthy it is today.
The baby-boom generation is already retiring
The strain on the pension system is already clear from the pension bill, and the pressure is set to grow in the coming years. In September, Social Security paid 10.55 million pensions to 9.53 million recipients. The pension bill rose by 6.3% year on year, while the number of pensions increased by just 1.6%.
The cost is rising faster than the number of pensions because payments are also increasing. This year, contributory pensions went up by 2.7%, while minimum pensions rose by more than 7%. On top of that comes the substitution effect, as new retirees receive around €500 more per month than those leaving the system.
The average retirement pension rose by 4.5% year on year, reaching €1,576.10 in September.
The toughest period is still ahead. People born between the late 1950s and the mid‑1970s (the baby‑boom generation) will be retiring over the next 20 years.
According to projections published by the National Statistics Institute (INE) in June, the share of the population aged over 65, currently 21.1% of the total, will rise to 30.9% in 2076. These forecasts assume a net migration gain of 6.3 million people by 2040. Without that immigration, the pressure on contributors would be greater.
Calvo focuses on what this will mean for people now starting their working lives. The projections, he notes, already show that pensions will cover a smaller share of a final salary, dropping from 77% to 65% in 2050, "and they do so on assumptions that Fedea itself sees as optimistic".
Who pays the growing bill?
According to early estimates, next year’s rise will be around 3.5%, the highest since 2024. The final figure will depend on the flash inflation rate for November.
The new parliament’s first session is scheduled for 23 December, with the timing of a new government depending on the outcome of talks after the election, and the pension rise must take effect from 1 January 2027.
The numbers above lead to a political question. Who pays the rising cost of the pension system? The options are limited, and none of them is painless. The first is to raise more revenue.
The 2021–2023 reform followed this path with the additional payroll levy and with new contribution rules for the self-employed.
The second option is to spend less on each pension. This can be done by delaying the effective retirement age or changing how the initial pension is calculated.
The third option is to keep turning to the state for more transfers or more loans, which ultimately means higher taxes or more public debt.
The fourth option is to increase the number of people paying into the system through more jobs and a larger working-age population, supported by immigration. Higher productivity and wages could also boost contributions.
What would reform mean for future pensioners?
Calvo argues for changing the formula. He proposes moving to a system of notional accounts, where pensions are based on each person’s contributions, revalued in line with economic growth, and adding a funded element in which money is invested for retirement.
Calculations by Devesa, Doménech and Meneu for Fedea that he cites put the gap between the pension received by new retirees today and the one they would get under that model at between 12% and 25%.
The size of the gap depends on the economic growth assumptions used.
That difference, he says, measures "the share of the current promise that the system cannot pay out of its own resources, and which someone is already funding through transfers and debt".
His proposal leaves existing pensions untouched and applies the change by generation, as Sweden did.
Those born in 1970 would have 5% of their pension calculated under the new formula, those born in 1971 would have 10%, and so on up to the 1989 cohort, whose pensions would be calculated entirely using notional accounts.
No generation would see a sudden jump compared with the previous one, and each worker would know decades in advance the rules that apply to them. According to Calvo, people with low contribution bases, those with long careers and the self-employed would all gain "with a system that counts every euro contributed".
He admits that introducing funded accounts requires more care, because diverting contributions into individual accounts would leave a gap in funding for existing pensions. So he proposes starting with the additional payroll levy, which in 2025 raised almost €5 billion for a Reserve Fund invested in public debt, and redirecting that money into funded accounts with diversified portfolios.
Asked who bears the cost of adjustment, he replies that the current system already imposes a cost and that it piles the burden onto young people and future taxpayers "without telling them". The reform, he argues, would make this explicit and share it among all generations still in work.
If he had to pick one measure for the government that emerges from the 29 November vote, Calvo would, in its first year, pass a law setting out the move to notional accounts with the generational timetable "fixed from day one".
That law would also oblige Social Security to send every contributor an annual statement showing what they have accumulated and an estimate of their future pension.
If a 30-year-old wonders whether they will receive a pension, Calvo insists that they will, "because it is the item of spending with the strongest political backing in the country and no government is going to stop paying it". The uncertainty, he adds, lies in how much it will amount to compared with their salary and at what age they will be able to retire.
His advice is to start saving independently now, even small sums, to take advantage of any workplace pension scheme on offer, and to follow closely a debate in which their generation has the most at stake. "Their best guarantee is for the system to be reformed while it still has time to adapt."
Each option produces different losers and operates on a different timescale, and the clock is ticking. On 27 November, we will learn how much pensions will rise in January. On 29 November, there will be a general election. Pensions will continue to be paid. Whoever wins will face decisions over who has to shoulder the rising cost.