The Actuarial Balance Sheet for Pay‐As‐You‐Go Finance: Solvency Indicators for Spain and Sweden*

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper provides the first estimate of the actuarial balance of the Spanish contributory pension system for the old age contingency, based on official data. The novel entry in the balance sheet, named "Contribution Asset" or "Hidden Asset", is at the centre of the theoretical discussion. A comparison between the official balance sheet for the Swedish national account system and our balance sheet for the Spanish system is also provided. The main finding is that the Spanish pension system has an insolvency rate of 31.4 %. The policy implication is that unless current legislation is reformed, Spanish taxpayers (the plan sponsor) should count on making transfers to the pension system with a present discounted value of 31.4 % of current liabilities. Moreover, a comparison of the consecutive balance sheets for 2001-06 shows that the degree of insolvency is growing over time, even though the cash-flow outcome has improved over the same period. Taking steps to reverse this trend and restore solvency is in the Spanish taxpayers' interest, and possibly also in the interest of those in the European Union who recognise that there is a chance that they may have to support the Spanish budget in the future. Terms of use: Documents inJEL Code: H55, J26, M49.Keywords: retirement, pay-as-you-go system, accountancy, solvency, pensions, Spain. María del Carmen Boado-Penas Department of Financial Economics and

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

“…In this section, we extend the actuarial overlapping generations model developed by Boado-Penas and Vidal-Meliá (2014) based on those first put forward by Settergren and Mikula (2005), Boado-Penas, Valdés-Prieto, and Vidal-Meliá (2008) and Vidal-Meliá and Boado-Penas (2013). These papers were to some extent inspired by the accounting framework for organizing, summarizing and interpreting data on transfer systems and the life cycle developed in Lee (1994), Willis (1988) and Arthur and McNicoll (1978).…”

Social Insurance Accounting for a Notional Defined Contribution Scheme Combining Retirement and Long-Term Care Benefits

“…In line with the classic Swedish ABS [10], which basically aims to compute the value of the commitments to contributors and pensioners taken on by the system, rather than calculate how much the system would have to pay a third party if it was decided to contract out or transfer those commitments, the interest rate for discounting liabilities to pensioners is taken to be the growth rate of the covered wage bill (G). Several papers have used a discount rate tied to wage growth or overall economic growth [11,22,24,31,32,34,73].…”

“…This paper builds on previous work carried out in the field of actuarial balances [11,[20][21][22][23][24][25][26][27][28][29][30][31][32][33]. All of these have dealt with the Swedish-type ABS, which has been compiled for various countries including Sweden [10,24,27,28], Spain [24,31], Japan [21], Canada [6,30], New Zealand [25], Germany [33] and Switzerland [11].…”

“…The search for valid expressions to apply to defined benefit (DB) PAYG systems began with the paper by Boado-Penas et al [24], which was the first to estimate the actuarial balance of the Spanish contributory pension system for the old-age contingency on the basis of official data. This line of research was continued by Vidal-Meliá [32], who in addition linked both types of actuarial balance.…”

“…All of these have dealt with the Swedish-type ABS, which has been compiled for various countries including Sweden [10,24,27,28], Spain [24,31], Japan [21], Canada [6,30], New Zealand [25], Germany [33] and Switzerland [11].…”