Since the signing of the Toledo Pact and its subsequent renewal, various legislative amendments – which may generally be seen as in the right direction – have been made. Examples include the (still incomplete) separation of the sources of financing of the Social Security system, the unification of the contribution bases, the creation of the Reserve Fund and the progressive simplification of the different contribution schemes, among others. However, among the Pact’s recommendations are other measures worthy of discussion, since they may considerably impact the system’s sustainability. At this stage we should ask ourselves which pension system reforms merit assessment. The range of possibilities is an extensive one, and a decision on which reforms should be made requires not only an expert assessment but a political one too. Resolving the system's problems may involve changes in the parameters of revenue or expenditure, but choosing the right or the most reasonable mix requires considerable political assessment. Yet some combinations may be preferable to others from the standpoint of economic efficiency in that they may generate greater incentives, for instance, to join the labour market. In this respect, what is important from a technical viewpoint is to maintain a high degree of proportionality between benefits received and contributions paid, a point that has been underscored from the outset in the Toledo Pact recommendations. Regarding the various options available, I shall refer to some already deployed by European countries and which, therefore, have been tested to some extent.

Specifically, France has recently lengthened the period  BIS Review 51/2009  3  for calculating the pension entitlement from 10 to 25 years, while Austria has extended it from 15 to 40 years and a significant number of countries (Finland, Poland, Portugal and Sweden) have extended it to cover the entire working life. This reform would be in line with the recommendations of the Toledo Pact and would increase the system’s proportionality, i.e. the relationship between pensions received and contributions made. Connected to this issue, there would be a possibility in Spain of furthering the reforms in recent years aimed at bringing the different Social Security schemes onto a more equal footing, so as to ensure that the contributions made under the different schemes are similar. Thirdly, some countries have lowered the income replacement rate, defined as the net pension divided by net income prior to retirement, by reducing the percentage of the regulatory base received after having contributed for the minimum period (currently set at 50%), by extending this minimum period or by reducing the rates with which this initial percentage increases for each additional year of contributions. A more novel alternative has involved linking pensions to life expectancy. Insofar as part of the problem arises as a result of the rise in life expectancy, adjusting pension amounts more or less automatically to these increases would be conducive to the sustainability of the system. Currently, this type of measure has been proposed or applied, to differing degrees, in almost half the OECD countries.