Wednesday, February 24, 2010

Political Obstacles to Pension Reform

My previous post (shown below) provided some data showing how we're all living longer (good news!). The number of years that people will spend in retirement has increased significantly.

Unfortunately, most of the retirement systems across the world are not set up to reflect this reality. While no one seems to disagree "the numbers" favor changes, popular opinion is strongly against any reasonable solutions (see health care debate).

Anyway, just look at the reaction to the proposed change to the Spanish retirement system, printed from today's London Times:

Tens of thousands protest across Spain at Zapatero’s pension reforms

Barcelona protest

People in Barcelona protest against government plans to increase the retirement age

Tens of thousands of protesters took to the streets across Spain last night in the biggest test of the country’s Socialist Government, which is under pressure.

With a general strike threatened in the summer, the two biggest Spanish unions staged protests in Madrid, Barcelona, Valencia and Alicante.

The Union General de Trabajadores (UGT) and the Confederación Sindical de Comisiones Obreras (CCOO), are planning to stage 57 protests in other parts of the country until next week.

Unions are angry about the Government’s proposed pensions reforms which would extend the legal retirement age from 65 to 67.

José Luis Rodríguez Zapatero, the Spanish Prime Minister who recently came under pressure from financial markets to introduce measures to bring the country out of recession, now finds himself threatened by his political allies in the unions.

The protests are the first time that Mr Zapatero has faced street unrest since he came to power in 2004. Leading members of the Prime Minister’s party took part in the protests, a sign that his popularity is dwindling.

Union anger has been mounting because Mr Zapatero changed tack in an effort to convince financial markets that his Socialist Government was serious in its efforts to recover from the worst recession in decades.

Spain’s rising debt has led to concerns that it could follow in the footsteps of Greece, whose budget crisis prompted the European Union to place it under scrutiny.

Mr Zapatero announced reforms of the labour laws which have been criticised by employers in an effort to reduce unemployment which is nearly at 20 per cent.

In another move, designed to cut the deficit which accounts for 11.4 per cent of Gross Domestic Product, Spain introduced an austerity package to save €50 million (£44 million) over three years.

The pension reform was created to ensure that the social security system remained viable. The reform has not proved popular. A recent poll in the newspaper El Pais showed that 84 per cent were against the move.

Cándido Méndez, the president of the UGT, said that he saw “no point of agreement” over the retirement plan.

However, Angel Gurria, the secretary-general the OECD, said that the reforms were essential if Spain wanted to reassure nervous financial markets it is committed to reviving the economy and cutting the public deficit.