Spanish Public Pension System Research Articles

Analyzing How the Social Security Reserve Fund in Spain Affects the Sustainability of the Pension System

Faced with the need to adjust public pension systems to meet changing demographic, economic and social conditions, most developed countries have created government reserve funds to ensure macroeconomic sustainability. This paper aims to study the importance that this reserve fund plays in the sustainability of the Spanish public pension system. Using data for the 2000 to 2019 period (20 observations) on the main variables impacting on the system, we calculate probabilities and other indicators of its unsustainability in relation to the reserve fund. Our model accurately reflects certain aspects of the data, and suggests that the probability of unsustainability is inversely associated with the size of the reserve fund, but that this relation is moderated by the heterogeneity of the members of the pension system. Moreover, the probability of unsustainability increases in line with the pension system deficit, the time elapsed until unsustainability is reached is shorter when the Reserve Fund balance falls, and the size of this fund at which the system becomes unsustainable diminishes with the probability of unsustainability.

La crisis financiera del sistema público de pensiones en España


 Tanto Colombia como España son Estados que afrontan sobrepoblación de adultos mayores según las cifras expuestas en la II Asamblea Mundial sobre Envejecimiento de Madrid (ONU, 2002), donde se discutieron temas sobre el aumento considerable de la población de los adultos mayores, no sólo en los países desarrollados sino en todos los países del mundo.
 Este aumento en la población de adultos mayores ha ocasionado problemas financieros a los diferentes sistemas pensionales del mundo con respecto a la sostenibilidad y a los fondos con los que se cuenta para garantizar el derecho a una pensión a los adultos mayores en edad de jubilación, especialmente en España, donde se habla de una crisis en el Sistema Público de Pensiones. Con el siguiente artículo, se analiza el sistema público de pensiones español, haciendo una descripción de sus componentes y la incidencia de sus cambios desde la Constitución de 1978.

The Spanish public pension system as opposed to the alternative of private pension plans

Many countries are currently facing the problem of sustainability of public pension systems due to demographic developments and changes in the labor market. In this context, private pension plans are often presented as an alternative. This paper aims to describe the functioning of the current public pension system in Spain and the impact that abandoning the current public system and adopting a pension system based on private contributions would have on workers and pensioners. To this end, a hypothetical case study is presented, for an average worker, comparing the contributions made in each of the systems (public and private) as well as the benefits received after retirement. The results show the different nature of public pensions, which act as an insurance and have a strong redistributive component, as opposed to private pensions, which have an investment nature. For the average worker, the adoption of a private system would entail losses in the purchasing power during his working life and a very substantial reduction in the amounts received during retirement, along with greater economic instability.

The Financial Health of the Spanish Public Pension System: Long-term Projections

The Financial Health of the Spanish Public Pension System: Long-term Projections

Automatic Regrouping of Strata in the Goodness-of-Fit Chi-Square Test

Pearson’s chi-square test is widely employed in social and health sciences to analyze categorical data and contingency tables. For the test to be valid, the sample size must be large enough to provide a minimum number of expected elements per category. This paper develops functions for regrouping strata automatically no matter where they are located, thus enabling the goodness-of-fit test to be performed within an iterative procedure. The functions are written in Excel VBA (Visual Basic for Applications) and in Mathematica. The usefulness and performance of these functions is illustrated by means of a simulation study and the application to different datasets. Finally, the iterative use of the functions is applied to the Continuous Sample of Working Lives, a dataset that has been used in a considerable number of studies, especially on labor economics and the Spanish public pension system.

THE FINANCIAL CRISIS OF THE PUBLIC PENSION SYSTEM IN SPAIN

Both Colombia and Spain are states that face overcrowding of the elderly in their pension system, according to the figures presented at the II World Assembly on Aging in Madrid (UN, 2002), which discussed issues of a considerable increase in the population of older adults, not only in Developed countries, but in all countries of the world. This increase in the elderly population has caused financial problems to the different pension systems in the world with respect to sustainability and the funds available to guarantee the right to a pension for older persons of retirement age. In Spain, especially, it is said that there is an imminent crisis in the Public Pension System. With the following article, it is aim to analyze the Spanish public pension system, describing its components and the incidence of its changes since the 1978 constitution

Impact of the Reform of the Spanish Public Pension System on Retirement Benefits

El objetivo de este trabajo es determinar el efecto directo que sobre las prestaciones por jubilacion tiene la reforma del sistema publico espanol de pensiones llevada a cabo recientemente. Aplicando Modelos de Micro Simulacion a una muestra de 5.025 vidas laborales de individuos que se jubilaron en 2011, se concluye que la reforma tiene una incidencia media negativa en las dos variables analizadas: la pension inicial y la edad de jubilacion. No obstante, cuando se analiza la incidencia por deciles, se observan en ambas variables efectos de distinta magnitud y signo, asi como una elevada correlacion entre dichos efectos.

The future of Spanish pensions

AbstractWe use an overlapping generations model economy with endogenous retirement to study the 2011 and 2013 reforms of the Spanish public pension system. These reforms delay the legal retirement ages, increase the contributivity of the system, and adopt a sustainability factor and a pension revualuation index that effectively transform the Spanish pension system into a defined-contribution pension system. We find that these reforms improve the sustainability of Spanish pensions substantially, and that they limit the tax increases that would have been necessary to finance the pension system deficits. But these results are achieved at the expense of large reductions in the real value of the average pension. This reduction is progressive and, by 2050, the average pension is approximately 30% smaller in real terms than what it would have been under the pension system rules that prevailed in 2010. We also show that these reforms are costly in welfare terms and that households born between 1950 and 1970, young disabled workers who are alive at the time of the reform, and future cohorts bear the highest welfare costs. The substantial reduction of pensions and the high welfare costs that these reforms bring about lead us to conjecture that further reforms lurk in the future of Spanish pensions.

Analysis of the representativeness of the Continuous Sample of Working Lives (CSWL): the case of the benefits provided by the Spanish Public Pension System

El objetivo de este trabajo es contribuir a aumentar el conocimiento de la Muestra Continua de Vidas Laborales (MCVL) en cuanto a la informacion sobre prestaciones y advertir de posibles errores que se podrian cometer a la hora de realizar cierto tipo de estudios sobre el sistema publico de pensiones. Se analiza el conjunto de datos de prestaciones de la MCVL de 2010 teniendo en cuenta los datos agrupados por tipo de pension, grupos de edad y genero, asi como por cuantia. Despues de realizar las pruebas estadisticas apropiadas sobre el ajuste de la muestra a la poblacion basada en los datos del Informe Estadistico anual del INSS del mismo ano, se concluye que los datos extraidos de la MCVL pueden no ser una fiel replica de la poblacion objeto de estudio, para cierto tipo de investigaciones, debido a su concepcion inicial (Muestra Aleatoria Simple), algunos errores originados en las fuentes administrativas y problemas de reclasificacion. Este resultado advierte de las implicaciones que pudiera tener en aquellos estudios que seleccionaran una submuestra de los datos de la MCVL sobre determinado tipo de prestaciones.

Selection of Large Sub-Samples from the Continuous Sample of Working Lives Representative of the Benefits Provided by the Spanish Public Pension System

The Continuous Sample of Working Lives (CSWL) is a set of anonymized microdata with information about individuals taken from Spanish Social Security records. It provides very valuable information, which is used in many studies on labor economics and in the analysis of the Spanish public pension system. This article presents two major contributions: The first is an analysis of how representative CSWL is of the population of pensioners for the period 2005-2013. It is concluded that the CSWL does not follow the same distribution as the population with respect to some types of benefits, and that this happens in most waves. One of the reasons is that it is obtained by simple random sampling, so the fit to the population by age, gender and type of pension is worse than it would have been under stratified random sampling (SR) with proportional allocation. As a possible solution, researchers could obtain a sub-sample by SR from CSWL. In this article we illustrate that this implies giving up a large number of pension records and thus reducing the diversity of data on working lives and types of pensioner. Hence, a second contribution of this paper is the application of a novel methodology based on optimization for choosing large sub-samples drawn from CSWL that are more representative of the population of pensioners. The advantages of using this sample design procedure are estimated by comparing the estimates for total pension expenditure provided by the CSWL and by such sub-samples.

Precariedad Estructural y Futuro de las Pensiones en España

<div><p>The Spanish post-crisis scenario of structural unemployment and job insecurity poses a new challenge to the public pension system: The trajectories of structurally precarious contributions, which carry the risk that future generations of retirees dispose of social protection levels considerably inferior to those of the current generations. The Spanish public pension system, already troubled by problems of sustainability, should be rethought in the context of a redefinition of the social security subsystem linked to the labor market.</p></div>

Es La Mcvl Representativa De Las Prestaciones Del Sistema PPblico De Pensiones? (Is the Continuous Sample of Working Lives (CSWL) Representative of the Benefits Provided by the Spanish Public Pension System?)

Spanish Abstract: En este trabajo se examina si los datos sobre pensiones incluidos en la Muestra Continua de Vidas Laborales (MCVL) son validos para realizar cierto tipo de proyecciones sobre la sostenibilidad del sistema publico de pensiones. Se analiza al conjunto de datos de prestaciones de la muestra teniendo en cuenta los datos agrupados por tipo de pension, grupos de edad y genero, asi como por cuantia. Despues de realizar las pruebas estadisticas apropiadas sobre el ajuste de la muestra a la poblacion, se concluye que la MCVL, en su conjunto, no refleja la distribucion seguida por la poblacion respecto a alguno de los tipos de prestaciones, por edad y genero. Este resultado advierte de los efectos en las proyecciones sobre de sistema de pensiones publicas que pudiera tener la seleccion de una sub-muestra de la MCVL que no sea representativa de la poblacion. English Abstract: This article examines if the data on pensions included in the Continuous Sample of Working Lives (CSWL) are valid for certain types of projections on the sustainability of the public pension system. The CSWL is analyzed considering the data grouped by type and amount of benefit, age cohorts and gender. After performing the appropriate statistical tests on the adjustment of the sample to the population, it is concluded that the CSWL, as a whole, is not a true reflection of the distribution followed by the population in each year, by type of pension, age, sex, and amount. This result warns us about the possible adverse effects on the projections made about the Spanish public pension system.

Gender Inequality in the Spanish Public Pension System

This contribution studies revenue sharing in the public pension system in Spain from a gender perspective, revealing that differences are evident in the percentage of men and women entitled to different types of pensions and in the average fiscal amount per pension for men and women. Using 2010 data, the study analyzes how labor market conditions are reflected in pension type and amount for women pensioners, yielding two important conclusions: the income of women pensioners decreases, relative to men, with age; and the degree of inequality of pensions among women is lower than that among men. These gender differences owe to the contributory character of the system, which reproduces the labor market inequalities of both genders – inequalities that ultimately derive from the social division of roles in which women remain responsible for unpaid care work. This conclusion is consistent with similar studies on other European countries and world regions.

Is the Reform of the Spanish Public Pension System of 2011 Justified from an Actuarial Point of View?

The aim of this paper is basically to answer three questions about the Spanish public retirement pension system. Is the 2011 reform of the system, which will gradually come into force starting on 1-01-2013, justified from an actuarial point of view? What measures would have been adopted in the Spanish system if all the accounting principles applied in the notional account pension system in Sweden were enforced? What measures would be adopted if current legislation on defined benefit private pension plans were applied to the system? To this end we formulate a Swedish-type actuarial balance for the Spanish public retirement pension system as at 31-12-2010 and project a solvency indicator for the system for the period 2010-2084 based on a set of predetermined scenarios.

Delaying retirement in Spain

We study the reform of the Spanish public pension system in a multiperiod, general equilibrium, overlapping generations model economy populated by heterogeneous households. Our households differ in their place of birth, in their age, in their education and, endogenously, in their employment status, in their wealth, and in their pension entitlements. They receive a stochastic endowment of efficiency labor units each period. And they face a disability risk and a survival risk. They understand the link between the payroll taxes that they pay and the public pensions that they receive. And they decide how much to consume and to work, and when to retire from the labor force. We calibrate this economy to Spanish data, and we use it to study the consequences of delaying three years the statutory retirement ages in 2010. We find this reform is sufficient to solve the sustainability problems that plague the current Spanish public pension system. Our model economy predicts that under the current rules, the pension system fund will run out in 2028 and in the reformed economy it will last until 2050. We also find that it is moderately expansionary, and that it improves social welfare from the year 2015 onwards. We conclude that policymakers should seriously consider delaying the statutory retirement ages in Spain sometime in the near future.

Projecting Pension Expenditure in Spain: On Uncertainty, Communication and Transparency

In this paper we suggest a set of indicators about the future performance of the Spanish public pension system and a suitable method of representing their uncertainty, in order to improve the communication to the public opinion about its main future challenges. Spain seems a particularly interesting case in Europe to illustrate our proposals, since the social security system has been in surplus for nine consecutive years, in sharp contrast to the projections made just a decade ago, but, at the same time, most projections foresee for Spain one of the highest increases in public expenditure among EU countries due to ageing. We argue that simple, transparent, credible, public and periodic indicators, which take explicitly into account the uncertainty about future demographic, economic and institutional developments, may contribute to improve the debate on the policies needed to strengthen the pension system.

Beyond the Toledo agreement: the intergenerational impact of the Spanish Pension Reform

The paper examines the intergenerational impact of the Spanish public pension system after the 1997 Pension Reform Act. Within a Generational Accounting framework, we find that the new legal setting could leave future generations with liabilities as high as 176% of 1996 GDP. Hence, we analyse the impact of alternative reforms. Holding the pay-as-you-go setting, a further improvement to tax-benefit linkage in line with the Toledo Agreement proposals is shown to yield an intergenerationally more balanced outcome, than an increase in the retirement age or an expansion of public subsidies financed through indirect taxes. Finally, a move toward a partially funded pension system which restores the intergenerational balance is simulated.

Beyond the Toledo Agreement: The Intergenerational Impact of the Spanish Pension Reform

The paper investigates the intergenerational impact of the Spanish public pension system after the 1997 Pension Reform Act. Using a Generational Accounting framework we find that maintaining the new legal setting could leave future generations with liabilities as high as 176 percent of base year GDP. As the recent reform measures have been insufficient to achieve sustainability of the current pension system, we also analyse the impact of alternative reform strategies. Within the current pay-as-you-go setting, a further improvement of the tax-benefit linkage in the original spirit of the Toledo Agreement is shown to yield the intergenerationally most balanced outcome, compared to an increase in retirement age or an expansion of public subsidies financed through indirect taxes. Finally, we investigate the generational impact of a move toward a partially funded pension system which could restore the intergenerational balance.