On the progressivity of public pension systems: the case of Spain

What is it about?

Public pension systems in advanced countries are characterised as being generous as they present real rates of return (pension/contribution ratios) at values greater than one. They are also considered to be progressive, being slightly more in favour of the lower incomes. In this study we show, in the case of Spain, the inappropriateness of this statement—a consequence of assuming the erroneous hypothesis of independence between income levels and (residual) life expectancies. Using a microdata set of the Spanish population composed of 48.5 million entries, disaggregated at the census section level, we calculate real rates of return on contributions based on salary for four income levels. The results reveal that contributors with higher incomes receive, on average, a relatively higher return. This previously unrevealed result should contribute to formulating more equitable public policies that consider sociodemographic disparities and can help to better understand the so-called solidarity quota introduced in the latest legislative reform of the pension system in Spain.

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