P R O S T – Pension Reform OptionsSimulation ToolkitTatyana Bogomolova,World Bank, HDNSP1
What is PROST?• PROST – computer-based toolkit to simulatepension systems over time• Created to support World Bank pension work• Developed in EXCEL, programmed in VisualBasic• User-friendly, input-output in Excel• Regular updates with new features2
Designed to:• Estimate future trends of the pension systemover a long time frame (coverage,contributions, benefits, financial flows)• Test robustness of the system to shocks (e.g.demographic, economic)• Evaluate and compare reform options topromote informed policymaking3
Key Features of PROST• Formulas are separated from data and assumptions,no hidden/imposed assumptions• Models single year cohorts, tracks them down overtime; income dimension• Ensures consistency of assumptions about changes inthe number of contributors, pensioners andcontribution density• Allows to model “dormant” contributors (importantin countries with low contribution density)4
Key Features of PROST (cont.)• Outputs intermediate results• Allows to look at pension system as a whole as wellas at individuals• Addresses all key policy dimensions• Capacity to model national, closed-group, multiple(fragmented) schemes• Generic, flexible, easily adapted to various countrycircumstances• Modeling reforms is relatively fast and easy5
Input Data and Assumptions• Demography– Population– Fertility– Mortality– Migration• Economy– Macroeconomy– Labor market• Pension system– Pension system data (initial status)– Pension policy– Behavior of pension system members6
PROST Output• Demographic projections– Population– Life expectancy– Population dependency ratios• Pension system demographics– Number of contributors– Number of pensioners (by pensioner category)– System dependency rate– Coverage rate• Pension system finances (PAYG DB, multipillar)– Wages, benefits– Pension system revenues, expenditures, current balance, assets/debt– Implicit pension debt• Output for individuals (contributions, benefits, NPV, IRR)8
Analysis of PAYG DB Systemswith PROST• Financial sustainability of PAYG systems (financialflows, IPD, financing gap)• Adequacy of expected benefits (at retirement, post-retirement, by pensioner category)• Distributional effects and equity issues• Evaluation of reform options9
Assessment of Pension Reform Optionswith PROST• Types of pension reform PAYG “parametric” reforms (changing contribution rates,retirement age, benefit formula, indexation, etc.) Systemic reforms (fully funded DC, notional DC schemes,any combination of PAYG DB, FF DC and NDC)• Different transition paths Switching pattern Accrued rights• Can now model on-going DC schemes10
PROST Modeling Experience• Used in 90+ WB client countries• ECB used PROST to model a number of countries(2009)• WB study on the impact of the financial crisis ondifferent types of pension systems (2009-2010)• WB study on the implicit pension debt (2004-2005)• Testing of PROST: comparing projections with theILO model, some actuarial models (Jordan, India,Tanzania)11
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