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Life-time redistribution effects of the Spanish public pension system

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Abstract

The paper analyses the inter and intragenerational redistribution effects of the public pensions system in Spain. This is achieved by first comparing the expected present value of life-time income transfers (PVT) and internal rates of return (IRR) of different population cohorts. Secondly, we study the intragenerational aspects of the Spanish public pensions by calculating PVTs the IRRs for workers of different categories, grouped by earnings, gender and marital status. The results obtained show the nature of the important intergenerational effects of the Social Security System in Spain. The oldest 1935 cohort clearly benefits in relation to the youngest 1965 cohort. This is basically due to the gap between current wages and the contribution bases established in the 60s and 70s in Spain during the early stages of the Social Security System, and to the worsening shortfall in Social Security funding, combined with the longer of life expectancy. In addition, intragenerational effects exist by income levels. For contributors who pay between the minimum and the maximum allowable contribution bases, net transfers and rates of return are higher in actuarial terms for high income contributors. The social security `dealï is again more profitable for high income individuals since they contribute at the maximum basis, with respect to low income contributors at the minimum basis. This is due to the late entry and a higher survival rate for high income contributors. The system tends to favour women, given that they generally live longer than men and this factor is only partially offset by their lower wages. Married males, given the fact that they have longer life expectancy and leave a pension to their spouse, obtain higher present net transfers too than do single contributors. We close the paper with some comments on the slight impact and moderate effects of proposals for Social Security reform and on how these may change the previously observed redistribution effects.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 242.

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Date of creation: Dec 1997
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Handle: RePEc:upf:upfgen:242

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Web page: http://www.econ.upf.edu/

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Keywords: Social Security in Spain; Life-time contributions and retirement;

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  1. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
  2. Nelissen, J.H.M., 1987. "The redistributive impact of the general old age pensions act on lifetime income in the Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3969555, Tilburg University.
  3. Creedy, John & Disney, Richard & Whitehouse, Edward, 1993. "The Earnings-Related State Pension, Indexation and Lifetime Redistribution in the U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(3), pages 257-78, September.
  4. Michael D. Hurd & John B. Shoven, 1983. "The Distributional Impact of Social Security," NBER Working Papers 1155, National Bureau of Economic Research, Inc.
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Cited by:
  1. Luís Eduardo Afonso & Reynaldo Fernandes, 2003. "Uma Estimativa dos Aspectos Distributivos da Previdência Social no Brasil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] f15, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. Rainald Borck, 2003. "On the Choice of Public Pensions when Income and Life Expectancy Are Correlated," Discussion Papers of DIW Berlin 369, DIW Berlin, German Institute for Economic Research.

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