The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems. JEL: classification: E62, E43, H55, J1, M41
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.
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