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

Emilio Gómez-Déniz, Jorge V. Pérez-Rodríguez and Simon Sosvilla-Rivero
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Emilio Gómez-Déniz: Department of Quantitative Methods and TIDES Institute, University of Las Palmas de Gran Canaria, 35017 Las Palmas de Gran Canaria, Spain
Jorge V. Pérez-Rodríguez: Department of Quantitative Methods, University of Las Palmas de Gran Canaria, 35017 Las Palmas de Gran Canaria, Spain

Risks, 2022, vol. 10, issue 6, 1-17

Abstract: 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.

Keywords: social security; public pensions; public pension reserve funds; sustainability; statistical approach; compound poisson distribution (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
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