Financial crisis and pension reform in Spain: the effect of labour market dynamics

We analyse the effect of post-financial crisis unemployment dynamics on the Spanish pension system's financial health using Aggregate Accounting. We compare the basic scenario where the current labour market dynamics persist with a full employment (best-case) scenario. We find that economic risk is the main driver of unsustainability in the short run. However, in the long run, the main driver of expenditures lies in the ageing demographic structure. Our results suggest that future reforms should increase labour market participation but confirm that recent pension reforms do not attain sustainability in the long run, indicating the need of further pension reforms.