Public spending on aging will account for 25.5% of GDP in 2050.

Spending on pensions, healthcare, and care—the items related to the aging population— will grow more in Spain than in the rest of the European Union . By 2050, the outlay that the State will have to make to address the rising average age of Spanish citizens will grow to 25.5% of GDP, according to the forecasts in the document Challenges and Policies in the Age of Longevity by CaixaBank Research, published this morning. This represents an increase of 5.2 percentage points, "clearly greater" than in the EU (+1.5 points).

According to the document published by the bank, the portion of public spending directly affected by aging that is taken as a reference consists of pensions, healthcare, and long-term care. Among these items, pensions represent the highest of the three (more than 60% in Spain).

"Population aging will have a major impact on public finances in advanced economies. The mechanism is well known: population aging and the resulting increase in dependency ratios can substantially reduce tax revenues and increase public spending. The main message is that demographic upward pressure on public finances will be intense in Spain and Europe ," explains the document, which also refers to figures published by other organizations such as Airef and the OECD.

Specifically, the entity's experts point to the report published by the Independent Authority for Fiscal Responsibility in March, which forecasts an increase in pension spending from 12.7% of GDP in 2022 to 16.1% of GDP in 2050 (compared to the estimated 12.1% average for the EU as a whole). This represents an increase of 3.4 percentage points over 25 years (compared to a growth of 0.7 points for the European average).

Furthermore, healthcare spending is expected to increase by 1.2 points of GDP to 8% between 2022 and 2050, while care spending is expected to grow by 0.6 points of GDP in both Spain and the EU.

There are two factors that explain why pension spending will put greater pressure on public accounts in Spain than in the EU in the medium term: the greater generosity of the public pension system (which, according to the bank, will reach 65% in Spain in 2050 compared to 38.5% in the EU) and the fact that the baby boom arrived later in Spain than in Central Europe (a circumstance that delays the peak of pension spending as a percentage of GDP in our country until 2045-2050).

However, according to the document published by the entity, the main determinant that would explain the increase in spending is demographics. In this sense, the estimate is that the decrease in the ratio of people of working age to retirees would contribute 8 percentage points to GDP between 2022 and 2050. Currently, for every person over 65, there are 2.6 people of working age, but in 2050, the INE projects that for every retiree, there will only be 1.6 people of working age.

The main reason is that the number of retirees will grow steadily over the aforementioned period, and this increase will not be offset by new entrants into the labor market, despite increased migration flows.

The impact of demographics, however, "would be partially offset by the expected fall in the profit rate (the ratio of the average pension to the average wage), by the increase in the employment rate, and by a lower eligibility ratio (pensioners among the population of retirement age)."