1. P R O S T – Pension Reform Options
Simulation Toolkit
Tatyana Bogomolova,
World Bank, HDNSP
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2. What is PROST?
• PROST – computer-based toolkit to simulate
pension systems over time
• Created to support World Bank pension work
• Developed in EXCEL, programmed in Visual
Basic
• User-friendly, input-output in Excel
• Regular updates with new features
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3. Designed to:
• Estimate future trends of the pension system
over 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 to
promote informed policymaking
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4. Key Features of PROST
• Formulas are separated from data and assumptions,
no hidden/imposed assumptions
• Models single year cohorts, tracks them down over
time; income dimension
• Ensures consistency of assumptions about changes in
the number of contributors, pensioners and
contribution density
• Allows to model “dormant” contributors (important
in countries with low contribution density)
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5. Key Features of PROST (cont.)
• Outputs intermediate results
• Allows to look at pension system as a whole as well
as at individuals
• Addresses all key policy dimensions
• Capacity to model national, closed-group, multiple
(fragmented) schemes
• Generic, flexible, easily adapted to various country
circumstances
• Modeling reforms is relatively fast and easy
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6. 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 members
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7. 7
Population
Contributors Pensioners
PS revenues PS expenditures
Economy
Annual current balance
Implicit Pension Debt
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Individuals
General Calculation Scheme
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Pension
system

8. 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)
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9. Analysis of PAYG DB Systems
with PROST
• Financial sustainability of PAYG systems (financial
flows, IPD, financing gap)
• Adequacy of expected benefits (at retirement, post-
retirement, by pensioner category)
• Distributional effects and equity issues
• Evaluation of reform options
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10. Assessment of Pension Reform Options
with 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 schemes
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11. 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 on
different types of pension systems (2009-2010)
• WB study on the implicit pension debt (2004-2005)
• Testing of PROST: comparing projections with the
ILO model, some actuarial models (Jordan, India,
Tanzania)
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