The main objective of this article is to determine, based on internal data, replacement rates for a defined benefit pension system, with two aims: the adequacy of pensions – measured in terms of the expenditure of retirees – and the sustainability of the system. For this purpose two instruments are used: the internal rate of return, and techniques based on systems of notional accounts. These figures, derived from internal data, will serve, by comparison with the replacement rate of the system, to assess whether the system tends more towards adequacy or sustainability. The system studied is that of Spain.

The reform of 2013 represented a qualitative leap in the reform of the Spanish pension system. Unlike its predecessors, it introduced two automatic resetting mechanisms similar to those of other European countries. The first is the sustainability factor, scheduled to come into effect in 2019 but delayed until 2023, and its ultimate reversal cannot be ruled out. The objective of this study was to quantify the savings, or the lowest expenditure, that can be achieved in the Spanish public contributory pension system by applying it. These savings are measured in terms of cash—of annual expenditure—and in terms of accrual by calculating its present actuarial value. Combining these two methods is one of the contributions of this work. This work was only intended to analyze the impact of the Sustainability Factor, therefore, it did not take into account the impact of the Pension Revaluation Index, which is the second mechanism introduced in the reform of the pension to 2013. An ad hoc projection method was used, combining microdata from the Continuous Sample of Working Lives (MCVL), aggregate data from the pension system, the financial-actuarial projection method, and actuarial techniques. The diversity of the data used is the second contribution of this work. The application of the sustainability factor would improve the viability of the system, since the savings that could be achieved, measured in terms of GDP for each year, would be 1.029% by 2050; 1.094% in 2057, the maximum; and 1.026% in the last year of projection. In terms of the present actuarial value and as a function of annual GDP, in 2050, the savings would be 1.27%, 1.40% in 2044, the maximum, and in 2067 it would decrease to 0.98%.

The inclusion of the Expected Return into the rules governing the insurance regulation in Spain may be considered as an important step to improve the transparency of the insurance system. The implementation of the Expected Return will allow to carry out the comparison, in terms of profitability, between insurance products offered by different companies. One of the objectives of this paper is to propose the methodology that should be followed for the calculation of the Expected Return, so that this indicator fulfills its main purpose: to compare different insurance products. The second contribution of this paper will allow to analyze the impact that the change in the premium value has on the Expected Return, so that it can become a new element to be considered by insurance companies.