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

Purpose Public pension systems in advanced countries are characterised as being generous, as they present high replacement rates and real rates of return (pension-to-contribution ratios adjusted for differences in purchasing power over time) at values greater than one. They are also considered to be progressive, being slightly more in favour of the lower incomes. In this paper, we evaluate the (in)appropriateness of this last statement in the context of Spain, focusing exclusively on contributory benefits. Design/methodology/approach We use a microdata set of the Spanish population composed of 48.5 million entries, disaggregated at the census section level, and calculate real rates of return on contributions based on salary for four income levels. Findings This study shows the inappropriateness of assuming the progressiveness of Spain's public pension system, which arises from the erroneous assumption of independence between income levels and (residual) life expectancy. The results reveal that contributors with higher incomes receive, on average, relatively higher returns. Research limitations/implications The conclusions are true on average. Deviations within and between groups are expected at the individual level. Practical implications These findings can help to better understand the so-called solidarity quota introduced in the latest legislative reform of the pension system in Spain. Social implications The results could contribute to formulating more equitable public policies that consider sociodemographic disparities. Originality/value This is a previously unrevealed result. While the relationship between income levels and longevity is well established, our research examines how these factors specifically influence the redistributive character of contributory pension benefits in Spain, offering a deeper understanding of how these inequalities manifest within a public pension system. Further research could be conducted in other countries to explore the (in)appropriateness of assuming the progressiveness of their public pension systems.