Economics at your fingertips  

Notional defined contributions (NDC): Solvency and risk in Spain

María Del Carmen Boado‐Penas, Inmaculada Domínguez‐Fabiá and Carlos Vidal‐Meliá
Authors registered in the RePEc Author Service: Carlos Vidal-Melia ()

International Social Security Review, 2007, vol. 60, issue 4, 105-127

Abstract: The aim of this article is twofold: to demonstrate the actuarial imbalance in the Spanish pension system in its current form; and to measure the degree of aggregate economic risk to which pensioners are exposed when applying formulas for the calculation of retirement pensions based on notional accounts. The model used generates scenarios for various periods encompassing some 10,000 different permutations of the macroeconomic indices needed to calculate such parameters as initial pension, earnings replacement rate, or internal rate of return and value at risk. The findings are analysed both objectively and subjectively. The main conclusions are that if the projections for the macroeconomic indices used bear only a minimal resemblance to reality, the pension system will accumulate further financial imbalance in the future that will force it either to reduce initial pensions considerably or to make some radical adjustments to the parameters. In terms of risk, for beneficiaries with high risk aversion the preferred formulas would be those based on future variations in wages with a constant pension amount in real terms; on the other hand, those less averse to risk would prefer formulas that generate a smaller initial pension but one which grows in real terms with subsequent changes in wage levels.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in International Social Security Review from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2021-06-07
Handle: RePEc:wly:intssr:v:60:y:2007:i:4:p:105-127