The cost and actuarial imbalance of pay‐as‐you‐go systems: the case of Spain

This work determines the actuarial cost of delivering a monetary unit of pension in the case of a pay‐as‐you‐go system. The model is also applied to determining the imbalance and the unitary pension cost of the contributory pension system of the Spanish Social Security system. The study covers all benefits and all regimes for five consecutive years from 2002 to 2006. Policy alternatives are presented that would allow the system to be brought back into balance by actuarially equating the cost to the value of the pension delivered.