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What are the consequences of the AWG projections on the adequacy of social security pensions?. An application of the dynamic cross-sectional microsimulation model MIDAS for Belgium, Germany and Italy. Final conference of the AIM project, October 20 th , 2008.

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what are the consequences of the awg projections on the adequacy of social security pensions

What are the consequences of the AWG projections on the adequacy of social security pensions?

An application of the dynamic cross-sectional microsimulation model MIDAS for Belgium, Germany and Italy

Final conference of the AIM project, October 20th, 2008

http://www.plan.be

MIcrosimulation for the Development of Adequacy and Sustainability

slide2
Introduction: Sustainability and adequacy
  • Why microsimulation?
  • MIDAS
    • General characteristics
    • Demographic module
    • Labour market module
  • Simulation results
    • Belgium
    • Germany
    • Italy
  • Conclusions
introduction sustainability and adequacy
Introduction: Sustainability and adequacy

Source: EC (2006) Table 3.3, page 71.

introduction sustainability and adequacy1
Introduction: Sustainability and adequacy
  • But the sustainability and adequacy of pensions are two sides of the same coin
    • Assumptions and projections underlying the assessment of sustainability affect adequacy
      • productivity growth, wages, employment, the link between wages and benefits
    • Not all aspects of the adequacy of pensions are reflected by the replacement rate
      • (re)distributional impact, poverty, the link between wages and benefits

so…

    • An assessment of the sustainability of pension systems should take into account the adequacy of pension benefits.
introduction sustainability and adequacy2
Introduction: Sustainability and adequacy
  • We therefore need a model that can simulate indicators of adequacy, while aligning to the assumptions of the AWG.
    • replacement rate, inequality, poverty.
    • since the AWG assessment of sustainability is prospective, so should the assessment of adequacy.
    • DYNAMIC MICROSIMULATION MODEL “MIDAS” (Microsimulation for the Development of Adequacy and Sustainability)
the midas team
The MIDAS team
  • Federaal Planbureau (FPB)
    • Raphaël Desmet, Frédéric Verschueren, Gijs Dekkers
  • Deutsches Institut für Wirtschaftsforschung (DIW).
    • Hermann Buslei, Johannes Geyer, Viktor Steiner, Dirk Hofmann
  • Instituto di Studi e Analisi Economica (ISAE)
    • Maria Cozzolino, Paola Tanda, Michele Raitano, Simone Tedeschi
  • Other important contributors
    • Cathal O’Donoghue (TEAGASC) and Geert Bryon (FPB)
slide8

DIW

-labour market module

- pension module Germany

  • FPB
  • - management
  • and coordination
  • Demographic module
  • pension module Belgium
  • Alignment to AWG projections and assumptions:
      • fertility
      • mortality
      • proportional size of working population
      • inactive states
      • labour productivity
      • social policy hypotheses

MIDAS

MIcrosimulation for the Development of Adequacy and Sustainability

Geert Bryon

Cathal O’Donoghue

LIAM-MIDAS

ISAE

-pension module Italy

the demographic module
The demographic module
  • Mortality, fertility: AWG- projections (2005)
  • Education
    • Step 1: Monte Carlo-routine ‘assigns’ an educational attainment level to every 10-year old.
    • Step 2: The individual enters the labour market at an age determined by the level of eduation.
  • Partnership formation : the ‘marriage market’ module
slide10

The labour market module

IN WORK

PUBLIC SECTOR

PENSION SCHEME

PUBLIC SECTOR

CIVIL SERVANT

Yes

Yes

Yes

No

No

PRIVATE SECTOR

PENSION SCHEME

EMPLOYEE

No

No

SELF-EMPLOYED

PENSION SCHEME

HOURS OF WORK

BY MONTH

HOURLY WAGE

MONTHS OF WORK

X

X

WIDOW(ER)S

PENSION

BENEFIT

the labour market module
The labour market module

IN WORK

Yes

WIDOW(ER)S

PENSION

BENEFIT

No

Disability benefit

UNEMPLOYMENT

PUBLIC SECTOR

PENSION BENEFIT

DISABILITY

Early retirement benefit

, unemployment benefit

for older workers, …

PRIVATE SECTOR

PENSION BENEFIT

EARLY-RETIREMENT,

UNEMPLOYMENT FOR

OLDER WORKERS, …

RETIREMENT

SELF-EMPLOYED

PENSION BENEFIT

OTHER INACTIVE

the belgian social security pension system
The Belgian social security pension system
  • Separate Bismarckian PAYG schemes for employees in the private and public sectors and self-employed. Civil servants pensions are regarded as deferred earnings.
  • Employees:
    • Disability benefits
    • Conventional Early Leavers’ Scheme (CELS)
    • Old-age retirement scheme
    • Surviving Spouse benefit
  • Civil Servants:
    • Disability benefits
    • Old-age retirement scheme
    • Surviving Spouse benefit
  • Self-Employed:
    • Minimum pension
  • Old-Age Guaranteed Minimum Income (GMI)

MIcrosimulation for the Development of Adequacy and Sustainability

the italian social security pension system
The Italian social security pension system
  • PAYG schemes for employees in the private and public sectors and self-employed. For workers entered in the labour market before 1996 the benefit is based on earnings and different rules are applied depending on sector and seniority; for the new entrants (after 1995) a NDC system is introduced.
  • The system guarantee:
    • Disability benefits
    • Old-age retirement scheme
    • Surviving Spouse benefit
    • Means tested minimum benefit (only for “regime retributivo”)
the german social security pension system
The German social security pension system
  • Separate Bismarckian PAYG schemes for employees in the private and public sectors (+ a few self-employed). Civil servants belong to another pension scheme, self-employed are mostly privately insured.
  • Employees:
    • Disability benefits
    • Old-age retirement scheme
    • Surviving Spouse benefit
  • Civil Servants:
    • Disability benefits
    • Old-age retirement scheme
    • Surviving Spouse benefit
  • Self-Employed:
    • Minimum pension
  • Old-Age Guaranteed Minimum Income (GMI)
conclusions
Conclusions
  • Developments of prospective indicators of adequacy are (remarkably) alike.
  • Replacement rate
    • Decreases at first, and then recovers in Belgium and Germany
    • Continuously decreases in Italy, as the earnings-related system is gradually replaced by the NDC system
  • Inequality of pension benefits increases at first, and then decreases again. The redistributive impact of pensions will increase from the early 2020’s in Germany, and late 2020’s in Belgium and Italy.
  • Risk and intensity of poverty of those receiving only pension benefits is higher than earnings-recipients in Belgium and Germany. It starts off lower in Italy, but increases throughout the simulation period.
  • The risk of poverty of pension benefit recipients increases at first, and decreases afterwards.
slide31

Thank you for your attentionGrazie per il vostro attenzioneDanke für Ihre Aufmerksamkeit Dank voor uw aandachtMerci pour votre attention

at what age does one enter the labour market

Observed participation rates to age and ISCED-level, Belgium, 2002

Source: AWG-projected education expenditures, Eurostat

At what age does one enter the labour market?

Table 2: average ages of education ending

Table 3: theoretical ending ages for level of education.

Source: European Commission, 2005, Table IX.1., page 145.

the marriage market

person is ‘selected’

to find a partner

Married

Cohabiting

  • “marriagemarket”
  • link individuals
  • create a new household

Marriage

Cohabitation

Marriage or cohabitation?

Divorce?

Separation?

yes

No

No

Yes

Marriage?

Yes

Divorced

Married

No

Cohabiting

Single

The ‘marriage market’
the marriage market1
The ‘marriage market’

Males selected for the marriage market

age,

age difference

dummy of working

dummies for eduational

attainment levels

Females selected for the marriage market

p=partnership(♀x,♂y)=max{p(x,y|x)} of the remaining y