Southern Europe Grapples with Pension Sustainability as Italy's Fertility Hits 1.18 and Spain's Pension Ratio Reaches 77%

Italy and Spain, two prominent Western European nations, are confronting a significant demographic and economic challenge marked by persistently low birth rates and comparatively high pension growth relative to salaries. This imbalance raises critical questions about the long-term sustainability of their social security systems, as highlighted by Michael A. Arouet, who recently stated on social media: > "Italy and Spain are the two countries in Western Europe with the lowest births rate. At the same time they are the countries with the highest pensions growth compared to salaries. Who is supposed to pay for these pensions as we go forward?"

Both countries exhibit some of the lowest fertility rates globally. Italy's average number of children per woman reached an all-time low of 1.18 in 2024, a decline from 1.20 in 2023, according to Istat data. Spain's birth rate for 2025 is projected at 7.74 per 1,000 population, continuing a declining trend. These figures place them among the EU countries with the lowest fertility, significantly below the replacement level of 2.1 children per woman.

Concurrently, Italy and Spain boast some of the most generous pension systems in Europe when measured against pre-retirement earnings. Eurostat data for 2023 indicates that Spain's aggregate replacement ratio for pensions stands at 77%, with Italy closely following at 75%. This means pensioners in these countries receive a substantial portion of their late-career income, ranking them among the top three in the EU, behind only Greece.

However, this generosity contrasts sharply with wage growth. While Spanish full-time workers saw their earnings grow by 14.7% between 2021 and 2024, Italian salaries increased by only 9.1% in the same period. Italy, in particular, has faced stagnating real wages, being the only EU country where real wages have declined since 1990, according to OECD data. Pensions in both countries are often indexed to inflation, ensuring their growth, which further widens the gap with sluggish salary increases.

The combination of an aging population, fewer young contributors entering the workforce, and robust pension payouts creates a substantial fiscal burden. With a shrinking base of workers to fund an expanding and longer-living retiree population, the long-term viability of these pension systems faces increasing pressure. Policymakers in both nations are exploring various reforms to address this demographic time bomb and ensure intergenerational equity.