Spain faces one of the major structural challenges of the coming decades: ensuring the future adequacy of pensions in the context of an aging population, slower growth in the labor force, and increasing pressure on public finances. The Spanish system continues to rely predominantly on Pillar I—that is, the public pension funded through a pay-as-you-go system. This model has historically provided a high level of social protection, but its sustainability is under strain due to demographic trends that will significantly reduce the ratio of active workers to pensioners. The ratio of employed persons per pensioner is projected to fall from approximately 2.1 today to about 1.3 in 2050, while public spending on pensions in Spain stood at 13.1% of GDP in 2024 and could reach 17.3% of GDP by 2050, according to European Commission projections.
This assessment calls for a shift toward a more balanced pension system, in which Pillar I maintains its essential role in social cohesion but is complemented by another—a broader Pillar II based on employer-sponsored pension plans and automatic enrollment mechanisms.
To understand the scope of this proposal, it is worth noting that modern pension systems are typically structured around three complementary pillars. Pillar I corresponds to the public pension, funded through social security contributions and designed to guarantee a basic income in retirement. Pillar II comprises occupational pension plans, linked to the employment relationship and promoted by companies, sectors, or collective bargaining agreements, with regular contributions from employees and, typically, from employers. Pillar III comprises voluntary individual retirement savings through private products purchased directly by citizens. The strength of the system does not depend on one of these pillars replacing the others, but rather on them functioning in a balanced manner: the first ensures social protection, the second allows for the accumulation of long-term collective savings during one’s working life, and the third offers an additional avenue for personal savings.
Automatic Enrollment or Auto-Enrollment
By international standards, Spain’s starting point for supplementary pension pillars is modest. In 2025, only 3.13 million workers participated in employer-sponsored plans, representing 14.4% of those enrolled in Social Security. Furthermore, pension providers’ assets amounted to 10.8% of GDP at the end of 2024, far below the European Union average of 32% and the levels recorded in countries with well-established multi-pillar systems, such as Denmark, Iceland, Canada, the United States, the Netherlands, Australia, and the United Kingdom. In some of these countries, pension assets far exceed the size of their economies: they represent 206.4% of GDP in Denmark, 191.3% in Iceland, 157.9% in Canada, 153.3% in the United States, 150.9% in the Netherlands, and 135.1% in Australia. This gap reflects a structural difference in the ability to channel long-term savings into the productive economy.
In this context, automatic enrollment (auto-enrollment) emerges as a particularly effective tool for expanding Pillar II. The logic behind it is simple: workers are automatically enrolled in an employer-sponsored pension plan, although they always retain the right to opt out of the system. This design leverages behavioral economics to transform inertia into participation. Rather than requiring each worker to actively decide to save, the system establishes pension savings as the default option. International evidence shows that this institutional change can substantially increase participation, especially among young people, low- and middle-income workers, and employees of small businesses—groups that are often left out of purely voluntary systems.
The British case serves as the central focus of the analysis. Following the introduction of automatic enrollment in 2012, employee participation in occupational pension plans rose from 47% in 2012 to 82% in 2024. The number of employees enrolled in defined-contribution plans increased from approximately 10–12 million before the reform to more than 23 million in 2024. The model combines automatic enrollment, the right to opt out, shared contributions between employees and employers, a gradual increase in contribution levels, phased implementation based on company size, and the availability of low-cost, easy-to-implement vehicles.
The Crucial Role of Markets
Strengthening Pillar II would have implications that go beyond improving individual pensions, as it combines social, economic, and financial dimensions. From a social perspective, it would make it possible to increase the future replacement rate (defined as the proportion of a worker’s final salary that they are able to maintain as income during retirement), reduce exclusive dependence on the public system, and improve the system’s intergenerational balance. From an economic standpoint, it would generate a stable flow of long-term savings toward productive assets, infrastructure, the energy transition, innovation, and business financing.
For these retirement savings to be effectively transformed into investment, it is essential to have transparent, liquid, efficient, and well-regulated channels. This is where stock exchanges, trading, clearing, and settlement systems, as well as primary and secondary markets, come into play, acting as critical links in the chain connecting savings and growth. Therefore, the development of Pillar II and the deepening of capital markets should not be viewed as separate objectives, but rather as complementary processes: greater accumulation of pension savings broadens the domestic and stable investment base, while deeper and more efficient markets allow for the more productive allocation of those savings and expand financing opportunities for businesses.
We cannot fail to mention the issue of returns. In an occupational pension system, long-term returns are not a secondary consideration, but rather an essential part of the mechanism that allows relatively modest periodic contributions to be converted into a significant source of retirement income. Therefore, the markets’ ability to generate value over long time horizons is key to understanding the potential of Pillar II. In Spain, the stock market has reportedly offered a historical average return over the last 120 years of around 8.3% nominal annually, including dividends, which—adjusted for an average inflation rate of approximately 5.3%—equates to a real return of close to 3%. In the context of retirement planning, this difference is decisive, because compound interest allows moderate periodic contributions to grow into a significant amount of accumulated savings over 30 or 40 years of working life. For this potential to be realized, the system’s design must combine professional management, diversification, low costs, transparency, portability, and investment strategies tailored to participants’ life cycles.
A Custom and Tailored Design:
For Spain, the proposal calls for moving toward a model of automatic enrollment adapted to the existing institutional framework, with the goal of gradually expanding participation in occupational pension plans. The design should be based on a phased implementation, contributions that are manageable for both employers and employees, well-targeted incentives, and the use of existing instruments, such as simplified occupational pension plans and publicly promoted occupational pension funds. The goal would not be to replace the public system, but rather to complement it with a broader, more efficient, and more accessible second pillar capable of incorporating groups that currently have limited participation in supplemental retirement savings.
Spain cannot address the pension challenge solely through the lens of public spending. The scale of demographic change requires expanding sources of retirement income and building a second pillar capable of mobilizing long-term savings in a stable, efficient, and widespread manner. Automatic enrollment offers a realistic path to achieving this, as it allows for broader participation in workplace pension plans where voluntary enrollment has shown clear limitations. Its impact goes beyond improving workers’ future pensions; it would also help strengthen the system’s sustainability, expand the institutional savings base, channel resources toward the productive economy, and deepen capital markets. For BME, this agenda is directly linked to the role of market infrastructure as an essential component in transforming savings into investment, investment into business financing, and financing into economic growth. In a European context that requires more patient capital, more productive investment, and deeper markets, strengthening Pillar II must be viewed as a strategic lever for the future of pensions and for the competitiveness of the economy.