When Pedro Sánchez called a snap general election for 29 November, pensions were always going to be a central issue. The question is not whether Spain can pay pensions next month, but who will foot the bill as the baby-boom generation retires in force.
Spain's pension system is pay-as-you-go: today's contributions fund today's pensions. There is no individual savings pot that can run dry. The constitution obliges the state to guarantee adequate pensions and adjust them regularly. If contributions fall short, the gap is covered by state loans or transfers.
Santiago Calvo, professor of quantitative and public economics at the Ruth Richardson Centre, argues that Social Security cannot go bust like a private company because the state's taxing and borrowing power stands behind it. But that shifts the risk onto the state itself. In their book El elefante en la habitación (The Elephant in the Room), Calvo and co-author Daniel Fernández sketch a “Greek-style” scenario: after years of plugging the hole with debt, a recession or a spike in interest rates raises borrowing costs until Spain can no longer finance itself at reasonable rates.
“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,” Calvo warns. In Greece, he recalls, cuts hit pensioners hard: the average pension fell from around €1,350 in 2009 to €833 a few years later.
Two very different deficit figures
The official headline is reassuring: Social Security ended 2025 with a deficit of €7.387 billion, or 0.4% of GDP, the lowest since 2011. Contributions rose 6.9% to €176.918 billion, helped by record employment – more than 22.5 million workers were registered in July 2026, with foreign workers making up 15.6% of contributors. The ratio of workers to pensioners stood at 2.37 in June.
But that headline number includes massive state support. Of the €232.782 billion collected in 2025, €47.815 billion came from state transfers – up 11% from the previous year. Those transfers now cover 20.5% of Social Security's income. Some fund non-contributory benefits, such as income support and minimum pension top-ups, which are meant to be tax-financed. But a large chunk – €27.505 billion in 2024 – went to cover contributory benefits, the very ones linked to workers' and employers' payments.
Fedea, a Madrid-based economic research institute, takes a broader view. Its analysis of the 2005–2025 accounts puts total state transfers to the wider system at €61.342 billion in 2025. Including those, the overall deficit would be around €8.4 billion – similar to the ministry's figure. Excluding them, the underlying deficit balloons to €69.783 billion, or 4.15% of GDP – roughly ten times the official figure as a share of the economy.
Calvo says both figures are “correct, but answer different questions.” The ministry's number measures the shortfall after state transfers; Fedea's compares what the system raises on its own with what it spends, “which is the relevant question when talking about sustainability.” He also notes that the official deficit fell by about €2.45 billion in 2025, while state transfers rose by €4.86 billion – without that extra injection, the balance would have worsened. Since the public sector as a whole is still in deficit, that money effectively comes from new borrowing.
Transfers are not the only lifeline. The state also lends to Social Security. From December 2022 to December 2025, the system's debt to the Treasury grew by €30 billion, topping €136 billion – more than double the amount paid into the pension reserve fund over the same period.
The debate is ultimately about how much of the pension bill should be paid by contributions and how much by general taxation. Spain's independent fiscal watchdog, AIReF, has assessed whether pension spending complies with the rule agreed with Brussels – an average of no more than 13.3% of GDP between 2022 and 2050, after deducting new revenues. The system is currently within that limit, but the pressure is mounting.
As the election campaign heats up, the pension question is not just about numbers. It is about the social contract between generations and the credibility of the state's promises. With leisure becoming unaffordable for many Europeans, the cost of ageing is a continental challenge. Spain's next government will have to decide whether to raise contributions, cut benefits, or rely ever more on the state's borrowing capacity – a choice with profound implications for the country's fiscal future and for the wider European debate on pension sustainability.
