Open AccessThe Spanish public pension system as opposed to the alternative of private pension plans
Author(s) -
Marta Cubas Pardo
Publication year - 2020
Publication title -
finance, markets and valuation
Language(s) - English
Resource type - Journals
ISSN - 2530-3163
DOI - 10.46503/ppqf4480
Subject(s) - private pension , pension , context (archaeology) , pension system , purchasing power , business , investment (military) , labour economics , economics , sustainability , public economics , finance , political science , paleontology , ecology , politics , keynesian economics , law , biology
Many countries are currently facing the problem of sustainability of public pension systems due to demographic developments and changes in the labor market. In this context, private pension plans are often presented as an alternative. This paper aims to describe the functioning of the current public pension system in Spain and the impact that abandoning the current public system and adopting a pension system based on private contributions would have on workers and pensioners. To this end, a hypothetical case study is presented, for an average worker, comparing the contributions made in each of the systems (public and private) as well as the benefits received after retirement. The results show the different nature of public pensions, which act as an insurance and have a strong redistributive component, as opposed to private pensions, which have an investment nature. For the average worker, the adoption of a private system would entail losses in the purchasing power during his working life and a very substantial reduction in the amounts received during retirement, along with greater economic instability.