A critical analysis of the Reserve Fund of Social Security

Abstract

The Social Security is passing through the most difficult time in our history which is causing the accelerated consumption of the Reserve Fund. In this context, the Reserve Fund of Social Security over the years has become a key to face the pension payments. This paper introduces a critical analysis of that instrument, which since its creation in 2000 in compliance with recommendation number two of the Pacto de Toledo and signed by all the parliamentary forces, has had as main objective to establish reserves that make it possible to mitigate the effects of depressive economic cycles and therefore ensure the financial balance of the public pension system. In order to do it, its origin and its legal system is reviewed, considering the different visions that structure the Reserve Fund about its nature, purpose and management. Moreover, an analysis of the funds allocations is done to show the erratic trend that has been followed over the years, and the different purposes that have been given to the Social Security surplus is reviewed beyond increase the fund. Regarding investment policy, we will focus on how it has changed the investment policy since the establishment of the reserve to the present and for what purpose, while other investment alternatives are considered. Other significant issues are related to the Reserve Fund as a funded system within a pay as you go scheme, whereby each generation pensions alone are responsible for the generation next, considering disputes arising between present and future rights of pensioners and contributors. In addition, the article reviews the different alternatives in some OECD countries of this instrument of the pension policy to highlight similarities and differences with the Spanish case. Finally, the article ends with the final thoughts and with the approach of the challenges and opportunities that could be drawn from this.