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    Vansonsbeek Presentation Vansonsbeek Presentation Presentation Transcript

    • Microsimulations on the effects of ageing-related policy measures
      Jan-Maarten van Sonsbeek
      (VU University / Ministry of Social Affairs and Employment)
    • Context
      Thesis consisting of four papers:
      A Microsimulation Analysis of the 2006 Regime Change in the Dutch Disability Scheme
      Microsimulations on the Effects of Ageing-related Policy Measures:
      Technical paper on the SADNAP model
      Policy paper
      Retirement Window / Delayed Retirement Credit
      2
      Microsimulations on the effects of ageing-related policy measures
    • Contents
      Background: Pension system, ageing in the Netherlands
      Data: Micro data on state pension payments and state and private pension entitlements
      Model: Demographic with behavioural retirement decision component (option value)
      Results: Baseline and four policy alternatives
      3
      Microsimulations on the effects of ageing-related policy measures
    • System characteristics
      1st pillar (state) pension:
      PAYG, contributions (2/3) + taxes (1/3)
      Basic income level, no income/means tests
      2nd pillar (company) pension:
      Fully funded (final wage  career average)
      Aim: 70% final wage
      3rd pillar (individual) pension
      “4th pillar”: personal wealth (housing)
      Microsimulations on the effects of ageing-related policy measures - Background
      4
    • 1st pillar state pension
      Fixed retirement age 65
      From 2010 retirement window 65 - 70
      Contributions partially earnings-related
      Pensions not earnings-related
      singles 70% MW (€ 12,700)
      couples 50% MW (€ 8,700)
      Addition: partner allowance (<65 yrs) <= 50% MW
      Subtraction: -2% for each year between 15 and 65 not lived in NL
      Microsimulations on the effects of ageing-related policy measures - Background
      5
    • Ageing in the Netherlands
      Population forecast (CBS, 2008)
      Nr. of 65+: 2.5 mln. (2009)  4.5 mln. (2040)
      Grey pressure: 25% (2009)  49% (2040)
      Life expectancy at 65: 19 yrs (2009)  21.5 yrs (2040)
      Sustainability gap projections (CPB)
      Estimate 2007: 2.2% GDP
      New estimate early 2010 (before 2011 elections)
      Influence economic crisis
      Microsimulations on the effects of ageing-related policy measures - Background
      6
    • Data sources
      Micro data
      State pension payments (SVB, 2.6 mln. – 2006)
      State pension entitlements (CBS, 11.0 mln. – 2005)
      Private pension entitlements (CBS, 5.8 mln. – 2005)
      Macro data
      Population forecast (CBS, 2009-2050)
      Household forecast (CBS, 2007-2050)
      Participation forecast (CPB, 2009-2050)
      Benefit forecast (SZW, 2009-2050)
      7
      Microsimulations on the effects of ageing-related policy measures - Data
    • Participation by Age
      8
      Microsimulations on the effects of ageing-related policy measures - Data
    • Wage and pension by age
      9
      Microsimulations on the effects of ageing-related policy measures - Data
    • Replacement rates by subgroup
      10
      Microsimulations on the effects of ageing-related policy measures - Data
    • The SADNAP Model
      SAS-based
      Demographic model:
      Births, Deaths, Immigration, Emigration
      Differentiation of mortality rates
      Household formation (0/1)
      Participation (0/1)
      Behavioural model:
      Retirement decision from age 60 onwards
      Stock & Wise option value model
      11
      Microsimulations on the effects of ageing-related policy measures - Model
    • The demographic model
      12
      Microsimulations on the effects of ageing-related policy measures - Model
    • The simulated database
      13
      Microsimulations on the effects of ageing-related policy measures - Model
    • Option value model
      Individual heterogeneity
      Leisure preference (k) ~ U(1-3)
      Time preference (ρ) ~ U(0; 0-0.05; 0.05-0.1; 0.1-0.2; 0.2-1)
      Expected wage decrease (τ) ~ U(0-0.18)
      14
      Microsimulations on the effects of ageing-related policy measures - Model
      • Option value (Stock & Wise, 1990): Wage + Retirement
      • Peak value (Coile & Gruber, 1998): Retirement only
    • Baseline scenario
      2006 macro forecast (€ 48.7 bln.)
      2006  2008 population forecast: + € 2.3 bln.
      Cost per person decrease: - € 1.9 bln.
      More immigrants (reduced state pensions)
      Rising labour participation of women
      No effect from ratio singles/couples
      2009 baseline estimate: € 49.1 bln.
      8.6% of GDP (but depends on growth assumption)
      15
      Microsimulations on the effects of ageing-related policy measures - Results
    • Differences in life expectancy
      Microsimulations on the effects of ageing-related policy measures - Results
      16
    • Baseline redistribution
      Microsimulations on the effects of ageing-related policy measures - Results
      17
    • Baseline retirement age pattern
      18
      Microsimulations on the effects of ageing-related policy measures - Results
    • Sustainability of public finance
      Main policy directions in case of unsustainability
      Let future generations pay the bill
      Increase government revenues
      Reduce government expenses
      Increase labour participation
      Considerations
      Budgetary effects
      Redistributive effects
      Participation effects
      Political viability
      19
      Microsimulations on the effects of ageing-related policy measures - Results
    • Policy Measures
      Abolishment partner allowance
      Decided 1996, in force 2015
      Raising retirement age 65  67
      “Decided” 2009, alternatives to be proposed by SEC
      Abolishment tax exemption for pensioners
      Proposed 2006 by most left-wing parties and SEC
      Individualization of state pensions: 50% for all
      Proposed 1987, very controversial
      20
      Microsimulations on the effects of ageing-related policy measures - Results
    • Effect on government budget
      21
      Microsimulations on the effects of ageing-related policy measures - Results
    • Tax exemption of pensioners
      22
      Microsimulations on the effects of ageing-related policy measures - Results
    • Effect on retirement age
      23
      Microsimulations on the effects of ageing-related policy measures - Results
    • Effect on redistribution
      Generic measure: Gini coefficient
      Specific measure: Share of lifetime pension income
      24
      Microsimulations on the effects of ageing-related policy measures - Results
    • Overall assessment
      25
      Microsimulations on the effects of ageing-related policy measures - Results
    • Conclusion
      Baseline
      Upwards pressure from population forecast
      Mitigated by decreasing cost per person
      Policy alternatives
      Abolishment partner allowance “no-regret measure”
      Abolishment tax exemption and individualization state pensions have largest cost effect
      Raising retirement age best for labour participation
      Microsimulation model
      Added value in policy evaluation
      Link with macro GE models important
      26