It is also necessary to take into account the relevance of employment and productivity developments when determining the sustainability of the pension system and, therefore, of the general government balance sheet. This is why it is so important that pension system reform should take place at the same time as structural reforms are adopted to improve the economy’s employment and productivity performance. It is also necessary to be aware that these variables themselves depend on the characteristics of the pension system, which should be geared towards fostering labour participation and worker productivity. We need to remember, moreover, that demographic developments, the ultimate reason for reforming the pension system, will also have effects in many other areas of economic activity over the coming decades, such as long-term growth, the configuration of the labour market, inflation, demand policy transmission and tax revenues.13 That is one more reason why it is necessary for pension system reform to be accompanied by structural reforms in other areas. The pension system reform should be intended to be long-lasting, since it will affect the economic decisions of all the citizens of many generations in relation to consumption, investment, labour supply and savings. Accordingly, it would be highly desirable for the reform to enjoy a broad consensus and to produce stable and transparent rules. 3.5  Next Generation EU  As I indicated earlier, one recent highly significant development was the approval by the European Council in July of the European recovery programmes.

See, for example, the estimate of the impact published in Box 6 of Economic Bulletin 4/2018 entitled “Recent pension system measures: analysis of impact on public finances”. Alternatively, the AIReF has recently published an estimate that quantifies the impact of this measure as an increase in spending of 2.3 pp of GDP in 2050. 11  33  of the sustainability factor has the capacity to reduce pension spending by 0.9 pp of GDP in 2050.12 Addressing these population ageing pressures will therefore require increasing the system’s resources or alternatively reducing the rate of benefit or further increasing the effective retirement age. The specific decisions in relation to this necessary revision of the system need to be taken in the political sphere, so that the various societal preferences regarding pension levels and the resources necessary to finance them are weighted appropriately. An important objective, in this respect, is that the reform eventually implemented should involve an increase in transparency as regards the public pension system benefit levels that agents can anticipate. This would allow citizens to take decisions regarding work, savings and the time of retirement on the basis of a set of information that is as complete as possible. Likewise, whether or not the reform strategy eventually decided upon involves a moderation in spending or an increase in revenues, the redistributive consequences within each generation and across generations need to be taken into consideration. These consequences, especially the latter ones, are particularly important in every pension system.