What is the Social Security Reserve Fund?

The purpose of the Social Security Reserve Fund is to guarantee the payment of contributory pensions in the future
The Social Security Reserve Fund was designed as a tool to guarantee the payment of contributory benefits granted by the Social Security System in the event that the latter lacks sufficient resources to do so, due to imbalances between its income (workers' contributions) and expenses (contributory pensions).
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The Social Security Reserve Fund (more commonly known as the pensions "piggy bank") was born out of an institutional concern regarding the sustainability of the national pension system. The Social Security Institute provides the following explanation on its website: “The Social Security Reserve Fund emerges as a result of an institutional demand in different areas and forums of dialog between political and social forces and the government for the Social Security system to establish special stabilization and reserve funds intended to meet the future contributory benefit payment needs caused by deviations between the income and expenses of the Social Security Institute”.

The Toledo Pact

The idea to set up the Social Security Reserve Fund came out of the so-called Toledo Pact. In 1995, with the approval of the Congress of Deputies plenary session, it was agreed, among other measures, to provide the national pensions system with a "piggy bank" in which it would deposit any Social Security Institute surpluses. In addition, the money accumulated would be invested in different financial assets with the aim of gaining a return on the capital. The accumulated balance in the pensions piggy bank is currently invested in Spanish public debt assets.

During the creation and drafting of the Toledo Pact, which was supported by all political parties, several aspects of the national pension system were analyzed, such as financing special schemes, improving collection mechanisms, maintaining the purchasing power of pensions, and the retirement age, which was modified in the 2011 reform and will end in 2027 with the standard retirement age set at 67 years (65 years for people who can demonstrate at least 38 and a half years of contributions).

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However, it was not until the year 2000 that the Social Security Reserve Fund was established as such and began to be assigned capital. From 2000 to 2011, the fund received annual contributions based on the surplus presented by the Social Security Institute each year. The first amount paid into this "piggy bank" was 540 million euros and the largest was in 2008, when it received more than 11,000 million euros.

Currently, the Reserve fund is being used by the government to alleviate the deficit of the Social Security Institute and to cope with extraordinary payments. Since 2011, amounts have been drawn down from this pensions "piggy bank", which had a balance of just over 8 billion euros at year-end 2017.

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