Transitional effects of a pension system change in spain

This paper studies the output effects, transition costs and the change in pension benefits derived from the substitution of the current unfunded pension system by a fully funded pension system financed through mandatory savings. These effects are estimated by using reduced versions of the neoclassical and endogenous growth frameworks. Because of the greater capital accumulation during the transition phase, final output increases by 23,6% (neoclassical framework); and a 24,5-31,5% (endogenous growth framework). The initial revenue loss for the government would represent a 4,8% of the GDP, raising very slowly during the transition period. Given the new growth rates, rates of return of physical capital, and financial intermediation costs, we have that the capitalization pension benefits obtained by all 30-contribution-year worker would be more than twice than those that guarantee the financial sustainability of the public pension system.