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Automatic Balance Mechanisms in Pay-As-You-Go Pension Systems


  • Carlos Vidal-Meliá

    (Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., Valencia 46022, Spain)

  • María del Carmen Boado-Penas

    (Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., Valencia 46022, Spain)

  • Ole Settergren

    (Swedish Ministry of Health and Social Affairs, Socialdepartementet, Stockholm SE-103 33, Sweden)


The aim of this paper is twofold: to show the usefulness of automatic balance mechanisms (ABMs) and to explore the issue of introducing an ABM into the Spanish state contributory retirement pension system. With this in mind, we define the concept of the ABM and carry out an analysis of that existing in Sweden, Canada, Germany, Japan and Finland. We also present an indicator of the Spanish system's solvency which emerges from the actuarial balance sheet, and simulates the effect that certain changes in the parameters of the present system would have on solvency, showing the direction that could be taken if the mechanism were to be introduced in Spain. A comparison between the official balance sheet for the Swedish notional account system and our balance sheet for the Spanish contributory pension system is also provided. The Geneva Papers (2009) 34, 287–317. doi:10.1057/gpp.2009.2

Suggested Citation

  • Carlos Vidal-Meliá & María del Carmen Boado-Penas & Ole Settergren, 2009. "Automatic Balance Mechanisms in Pay-As-You-Go Pension Systems," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 34(2), pages 287-317, April.
  • Handle: RePEc:pal:gpprii:v:34:y:2009:i:2:p:287-317

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    References listed on IDEAS

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    Cited by:

    1. Hagen, Johannes, 2013. "A History of the Swedish Pension System," Working Paper Series, Center for Fiscal Studies 2013:7, Uppsala University, Department of Economics.
    2. Manuela Bosch-Princep (Universitat de Barcelona) & Daniel Vilalta (Independent Pension Consultant), 2012. "Quantitative reduction in retirement benefits by the 2011 Spanish Social Security reform," Working Papers in Economics 281, Universitat de Barcelona. Espai de Recerca en Economia.
    3. Godínez-Olivares, Humberto & Boado-Penas, María del Carmen & Haberman, Steven, 2016. "Optimal strategies for pay-as-you-go pension finance: A sustainability framework," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 117-126.
    4. Juan Manuel Pérez-Salamero & Marta Regúlez Castillo & Carlos Vidal Meliá, 2016. "Análisis de la representatividad de la MCVL: el caso de las prestaciones del sistema público de pensiones," Hacienda Pública Española, IEF, vol. 217(2), pages 67-130, June.
    5. Simonovits, András & Gál, Róbert Iván, 2012. "A magyar nyugdíjrendszer éves hozamrátái
      [Annual rates of return in the Hungarian pension system]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 963-987.
    6. Alfonso R. Sánchez, 2014. "The automatic adjustment of pension expenditures in Spain:an evaluation of the 2013 pension reform," Working Papers 1420, Banco de España;Working Papers Homepage.
    7. Frédéric Gannon & Florence Legros & Vincent Touze, 2016. "Sustainability of pensions schemes : building a smooth automatic balance mechanism with an application to the US social security," Sciences Po publications 2016-16, Sciences Po.
    8. Alonso-García, J. & Devolder, P., 2016. "Optimal mix between pay-as-you-go and funding for DC pension schemes in an overlapping generations model," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 224-236.

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