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

Carlos Vidal-Melia, María del Carmen Boado-Penas and Ole Settergren
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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 Geneva Papers on Risk and Insurance - Issues and Practice, 2009, vol. 34, issue 2, 287-317

Abstract: 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

Date: 2009
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