Modelling the pension system

• Published in: Futures : the journal of policy, planning and futures studies Vol. 35; no. 1; pp. 75 - 87
• Main Author: Herce, José A.
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01-02-2003; Elsevier Science Ltd
• Subjects: Aggregate Data; Economic models; Government spending; Methodological Problems; Methods; Pensions; Public Finance; Research Methodology; Social Policy; Spain; Studies
• ISSN: 0016-3287; 1873-6378
• DOI: 10.1016/S0016-3287(02)00052-6

This paper argues that pensions modelling should be a parsimonious process using different methodologies for different purposes. A range of methodologies exists and is being extensively used in different countries and quarters. Very simple aggregate accounting models can yield robust results as for the sustainability of pension systems, an issue that worries most analysts and governments. While more sophisticated formally derived models have the advantage of yielding results that take into account general equilibrium effects, ad hoc models have the advantage of being better able to cope with the fine structure of pensions programmes and formulae. Focusing on the Spanish pension system to illustrate the output of an ad hoc model, several applications are briefly presented: sustainability indicators up to the horizon 2050, effects of increased migratory flows and an evaluation of recent pension reform legislation. Some attention is paid to the fact that societal issues and behaviours are intertwined with pensions in a way difficult to be captured by standard modelling methodologies.