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The Sustainability and Adequacy of Pensions in Belgium Joint assessments with MIDAS and MALTESE

The Sustainability and Adequacy of Pensions in Belgium Joint assessments with MIDAS and MALTESE . Gijs Dekkers. 2nd Tecnical meeting on the Use of Administrative Data and Modelling Techniques in the Monitoring of Pension Systems EC and the Spanish Presidency, Madrid, 23 March 2010 .

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The Sustainability and Adequacy of Pensions in Belgium Joint assessments with MIDAS and MALTESE

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  1. The Sustainability and Adequacy of Pensions in BelgiumJoint assessments with MIDAS and MALTESE GijsDekkers 2nd Tecnical meeting on the Use of Administrative Data and Modelling Techniques in the Monitoring of Pension Systems EC and the Spanish Presidency, Madrid, 23 March 2010.

  2. Overview of this presentation • General Introduction to MALTESE and MIDAS • The financial consequences of social policy: two examples considered • An increase of the minimum right per career yearwith 17% from October 2006 on • An increase of the Garanteed Income for the Elderly (inkomensgarantievoorouderen) with 13,7% from December 2006 on • Work in PROGRESS and conclusions 2

  3. I.General Introduction to MALTESE and MIDAS

  4. MIDAS and MALTESE: institutional context Technical support MALTESE FINANCIAL SUSTAINABILITY OF THE PENSION SYSTEM Study Committee on Demographic Ageing Alignment On projections Assumptions and hypotheses MIDAS ADEQUACY OF PENSIONS 4

  5. Number of beneficiaries Averageamount THE MALTESE SYSTEM: MODEL FOR ANALYSIS OF LONG TERM EVOLUTION OF SOCIAL EXPENDITURE DEMOGRAPHIC PROJECTION By age group and gender DEMOGRAPHIC SCENARIO MACROECONOMIC SCENARIO SOCIODEMOGRAPHIC SCENARIO SOCIODEMOGRAPHIC PROJECTION By age group and gender MACROECONOMIC PROJECTION: Employment, GDP, wages, … SOCIAL BENEFITS EXPENDITURE BY SCHEME AND REGIME HEALTH CARE EXPENDITURES SOCIAL SECURITY ACCOUNTS Revenues, expenditures, balance, debt SOCIAL POLICY SCENARIO GENERAL GOVERNMENT ACCOUNTS Revenues, expenditures, balance, debt BUDGETARY POLICY SCENARIO 5

  6. MIDAS - Microsimulation for the Development of Adequacy and Sustainability Startingdataset: the Panel Dataset on BelgianHouseholds PSBH of 2002 Mortality, fertility, education, ‘marriagemarket’ DEMOGRAPHIC MODULE Employment, public and private sector, civil servants, unemployment, disability, CELS, retirement t+1 LABOUR MARKET MODULE Hours of work per month, months of work per year, earnings per hour • 1st pillar pension benefits • employees’ scheme • civil servants scheme • independentworkers’ scheme • CELS benefits • disability pension benefits • unemploymentbenefits • welfarebenefits PENSION & BENEFITS MODULE 6

  7. Consistency between MALTESE and MIDAS • Both MIDAS and MALTESE include all policy measures introduced up to 2009, including the increases by 17 en 13.7% of the minimum right per career year and the Guaranteed Income of the Elderly between 2006 and 2007. • 2. Both models apply the parameters of the Generational pact : • wage ceiling and minimum right per career year in employees’ pension benefit : 1.25% • indexation pension benefits employees’ scheme and independents’ scheme wage-related : 0.50% • indexation minimum (pension) benefits: 1% • 3. Midas aligns to MALTESE, and hence adopts its projections 7

  8. The application of alignment in MIDAS • State alignment • fertility, mortality (to gender, age, simulation year) • employment rate (to gender, age category, simulation year) • unemployment rate(idem) • rate of independent workers (idem) • rate of civil servants (idem) • disability rate (idem) • CELS rate (idem) • Monetary alignment • gross wages (to gender and simulation year) 8

  9. Replacement ratio- base scenario 9

  10. Povertyrisk to status – base scenario 10

  11. Incomeinequality (Gini) to status – base scenario 11

  12. II. The financial consequences of social policy: two examples considered 1. An increase of the minimum right per career yearwith 17% from October 2006 on

  13. What does the minimum right per career year do? 13

  14. The budgetary impact of the increase of the minimum right per career year (% GDP) 14

  15. The impact of the increase of the Minimum Right per CareerYear on povertyrisk to status (%) 15

  16. The impact of the increase of the Minimum Right per CareerYear on povertyrisk to status (%)poverty line 70% of medianequivalentincome 16

  17. II. The financial consequences of social policy: two examples considered 2. An increase of the Garanteed Income for the Elderly (InkomensGarantievoorOuderen - IGO) with 13,7% from December 2006 on

  18. The budgetary impact of an increase of the IGO with 13.7% Increase of 0.045% GDP 18

  19. An increase of the IGO with 13.7%: what determines the budgetary impact? 19

  20. The impact of the increase of the GuaranteedIncome of the Elderly on the Povertyrisk to status (%) 20

  21. III. Work in PROGRESS and conclusions

  22. The goals of the PROGRESS project SIPEBE • Consistency of MIDAS with MALTESE • extentions of MIDAS • Gross-net trajectory • The 2nd pension pillar • Replacing the startingdataset by administrative data • Besides the PROGRESS deliverables, someextentions and furtherdevelopments are necessary: net immigration, weights, furthermonetaryalignment, … 22

  23. Conclusions • Thanks to PROGRESS and the collaboration with the Federal Public Service Social Security, the FPB is well under way to develop MIDAS into a tool for the assessment of pensions in conjunction with MALTESE • This presentation uses the capacity of joint analysis with both models to… • Simulate the impact of the 17% increase of the minimum right per career year • Expenditures increased by 0.07% GDP in total, but impact will be gradual • No impact on poverty risk with 60% poverty line • Long-run impact of poverty risk with 70% poverty line • Simulate the impact of the 13.7% increase of the Guaranteed Income of the elderly • Expenditures increased by 0.045% GDP in total, roughly equally spread over all years • Considerable and nearly immediate impact on poverty risk with 60% poverty line Back to title 23

  24. Consistency between MALTESE and MIDAS: alignment in MIDAS Several procedures that aim to make the model reproduce one or more exogenous aggregates. state alignment monetary alignment Monetary alignment target growth rate gxt ‘standard’ Monte Carlo simulation Aligned simulation to target x% Sum to aggregate ; derive aggregate growth rate gY Derive corrected growth rates Pi=logit-1(βX) Rangordei=logit-1(βX+εi) Eerste xN personen Ui < Pi State 1 State 1 Rangorde 1...n Persoon i Run the model yi=βXi + ui (2001) Apply corrected growth rate -> t State 2 State 2 Run the model yi=βXi + ui (2001, t) Overige (100-x)N personen Ui < 1-Pi 24

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