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The Sustainability Factor: How Much Do Pension Expenditures Improve in Spain?

Author

Listed:
  • Enrique Devesa

    (Department of Financial and Actuarial Economics, Faculty of Economics, University de València (UV), 46010 Valencia, Spain)

  • Mar Devesa

    (Department of Financial and Actuarial Economics, Faculty of Economics, University de València (UV), 46010 Valencia, Spain)

  • Inmaculada Dominguez-Fabián

    (Department of Financial Economics and Accounting, Faculty of Business, University of Extremadura, 10071 Cáceres, Spain)

  • Borja Encinas

    (Department of Financial Economics and Accounting, Faculty of Economics, University of Extremadura, 06006 Badajoz, Spain)

  • Robert Meneu

    (Department of Mathematics for Economics and Business, Faculty of Economics, University de València (UV), 46010 Valencia, Spain)

Abstract

The reform of 2013 represented a qualitative leap in the reform of the Spanish pension system. Unlike its predecessors, it introduced two automatic resetting mechanisms similar to those of other European countries. The first is the sustainability factor, scheduled to come into effect in 2019 but delayed until 2023, and its ultimate reversal cannot be ruled out. The objective of this study was to quantify the savings, or the lowest expenditure, that can be achieved in the Spanish public contributory pension system by applying it. These savings are measured in terms of cash—of annual expenditure—and in terms of accrual by calculating its present actuarial value. Combining these two methods is one of the contributions of this work. This work was only intended to analyze the impact of the Sustainability Factor, therefore, it did not take into account the impact of the Pension Revaluation Index, which is the second mechanism introduced in the reform of the pension to 2013. An ad hoc projection method was used, combining microdata from the Continuous Sample of Working Lives (MCVL), aggregate data from the pension system, the financial-actuarial projection method, and actuarial techniques. The diversity of the data used is the second contribution of this work. The application of the sustainability factor would improve the viability of the system, since the savings that could be achieved, measured in terms of GDP for each year, would be 1.029% by 2050; 1.094% in 2057, the maximum; and 1.026% in the last year of projection. In terms of the present actuarial value and as a function of annual GDP, in 2050, the savings would be 1.27%, 1.40% in 2044, the maximum, and in 2067 it would decrease to 0.98%.

Suggested Citation

  • Enrique Devesa & Mar Devesa & Inmaculada Dominguez-Fabián & Borja Encinas & Robert Meneu, 2020. "The Sustainability Factor: How Much Do Pension Expenditures Improve in Spain?," Risks, MDPI, vol. 8(4), pages 1-21, December.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:4:p:134-:d:458188
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    References listed on IDEAS

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    1. Jose Enrique Devesa-Carpio & Mar Devesa-Carpio, 2010. "The cost and actuarial imbalance of pay-as-you-go systems: the case of Spain," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 13(3), pages 259-276.
    2. Díaz-Giménez, Javier & Díaz-Saavedra, Julián, 2017. "The future of Spanish pensions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(2), pages 233-265, April.
    3. Giuseppe Carone & Per Eckefeldt & Luigi Giamboni & Veli Laine & Stéphanie Pamies Sumner, 2016. "Pension Reforms in the EU since the Early 2000's: Achievements and Challenges Ahead," European Economy - Discussion Papers 042, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. José Enrique Devesa‐Carpio & Mar Devesa‐Carpio, 2010. "The cost and actuarial imbalance of pay‐as‐you‐go systems: the case of Spain," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(3), pages 259-276.
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    1. Raffelhüschen, Bernd & Rudolph, Karen & Will, Sebastian, 2021. "Ehrbare Staaten? Update 2021: Die Nachhaltigkeit der öffentlichen Finanzen in Europa," Argumente zur Marktwirtschaft und Politik 160, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.

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