The Spanish pension system has been recently reformed as a response to the demographic challenge and with the objective of ensuring the sustainability of the pension system in the long-term. The overall reforms include changes in the majority of the system parameters, a new indexation rule and a sustainability factor that links life expectancy and the first pension amount. The aim of this work is to analyse how these reforms affect two important features of a pension system: fiscal sustainability and adequacy. For this purpose, the real internal rate of return (IRR) of the lifetime contributions and benefits and the prospective gross theoretical replacement rate (TRR), both before and after the reforms, have been computed. The calculations are case-study based, for a few hypothetical workers who are sufficiently representative of the earnings and retirement patterns in Spain. The results show that the real IRR is 0.7 p.p. lower and the prospective gross TRR is 18 p.p. lower after the reform process for the base case of a man with an uninterrupted career of 40 years with average earnings and a retirement age of 65. In addition, pension reform process in Spain has different effects among the individuals depending on the gender, level of earnings, retirement age and career length.

The Spanish public pension system has been subjected to some major reforms, both parametric and structural, during the years 2011 and 2013. These reforms entail to improve the solvency of the system by ensuring its viability, but also involve a decrease in the purchasing power of today and future pensioners. This fact implies a saving necessity to supplement the public retirement pension. The favorable fiscal treatment of the amounts of money destined to finalist savings has been considered as an incentive instrument, and the reform of the Personal Income Tax in Spain in 2014 involves chan-ges that affect the complementary social security systems. In this paper we will analyze both the effects of the reform of the Spanish pensions system on the solvency and sufficiency of public and private pensions, and the tax treatment of savings in 2014.