THE SPANISH PENSION SYSTEM: ISSUES OF INTRODUCING NOTIONAL DEFINED CONTRIBUTION ACCOUNTS

Abstract

There are two aims to this paper: firstly, to provide an objective technical assessment of the current situation of the contributory pension system in Spain and its prospects for the future, and secondly, to look at the issues surrounding the introduction of a system of notional defined contribution accounts. To this end we explain the basic elements upon which the current system is based and show its main indicators, then set out some of its fundamental problems. Following this we look at the most relevant research work, where forecasts can be found that will give us a clear idea of the system's financial sustainability. Finally we put forward an argument as to why a notional accounts system could be a valid alternative for reforming the current system, and suggest which formula or group of formulas would best fit the profile of contributor-beneficiary risk and what the transition process would beRetirement, Pay-as-you-go, Internal Rate of Return (IRR), Financial sustainability.