Kastryčnicki Ekanamičny Forum, Minsk, 2019

1. Reconstruction of social protection
Kastryčnicki Ekanamičny Forum, Minsk, 2019
Joanna Tyrowicz

2. Who am I and why am I here?
o At GRAPE we analyze pension systems
o We are academics (research projects, academia)
o Our results speak to policy makers
o European Commission, OECD, the World Bank
o EU-China High Level Round Table
o … and other stakeholders
o ING, CEPR, DELL, DELOITTE, PHINANCE
o Me personally
o Professor of economics in Warsaw and in Regensburg + IZA
o Columbia University (Fulbright exchange + joint projects)
o National Bank of Poland (2009-2017)
o Co-founding GRAPE, head of IOS in Regensburg

3. Can public (universal) pensions work?
o Wishful thinking a la polonaise
o Polish pension system after 1999 was to be self-balancing
o Without 1999 reform, the deficit would reach 8% of GDP pa
o After 1999 reform, instead of deficit ↑, pensions ↓
o BUT:
o minimum pension benefit guarantee (4-5% GDP)
o inappropriate use of actuarial tables (1.5% GDP)
o inconsistent inheritance rules (~0.7% GDP)
o Overall: low pensions, with low indexation and mounting deficit
o Informing policy ex ante is key

4. (selected) Analyzes of GRAPE
o State-of-the-art overlapping generations models
o Full demographic forecast
o People adapt to changes in taxes, contributions, interest rates…
o People are heterogeneous: preferences and biases
o What do we know so far?
o The reform from 1999 was in principle a good idea
o The subsequent changes not so much …
o … but could not be prevented
o Reducing the retirement age is a very bad idea
o Et cetera

5. How do we run such analyses?
o People optimize “happiness” during lifetime
o They like consumption, but do not like to work so much
o They have expectations about longevity, taxes, pensions, wages, interest
rates …
o Firms hire work and use savings as productive capital
o The government
o Collects taxes, pays govn’t consumption, pays debt interest …
o … and balances pensions (collects contributions and pays benefits)
+ Capital pillar in the system: mandatory or voluntary
We calibrate such a model to replicate a true economy …
… and then we play!

6. Reducing eligibility age is a very bad idea
0%
10%
20%
30%
40%
50%
60%
70%
80%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Year of birth
% of pension recipients
whose pension falls short of the minimum benefit
retirement age of 67
retirement age of 60/65

7. Reducing eligibility age is a very bad
idea
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070
Change in GDP
(relative to gradual increase of eligibility age to 67/67)

8. What do we do? Simulate an economy!
o Households optimize lifetime felicity
o Like consumption, prefer leisure to work
o Form expectations about wages, taxes, pensions and interest rates
o Take into account survival
o Firms hire workers and use household savings as capital
o Government
o Collects taxes, spends on gov expenditure, services debt,
balances pensions
o Pension institution collects contrbutions and pays out the pensions
Calibration + scenarios to study questions of political relevance

9. Combine econ and demographics
o Status quo scenarios, as population structure changes
o Compare policy experiments (system or parameters) to status
quo
o fiscal variables
o consumption, savings, GDP path
o pensions and poverty
o „felicity” of people
o This is NOT an excel spreadsheet: reactions + heterogeneity!
o Our recent contributions
o Inequality
o Incomplete rationality and biased beliefs of households
o Voluntary savings schemes (tax incentives vs mandatory)

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Assets
Age
Voluntary saving for the old age

11. 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59
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Age
Savingrate
How much do you have to save?

12. 0%
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100%
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Savingrate
Assets
Age
Recent „reform” in Poland
will not change much

13. (Instead of) Summary
o Policy experiments ex ante are possible
o And cheaper than real world experimenting
o Challenges ahead are enourmous
o People on average are unable to address these challenges
o 50-70% of old-age consumption financed from own savings
o Low pensions = high political tension
o No easy policy options
o There is broad literature which can genuinely inform policy

14. Thank you for your attention!
w | grape.org.pl Joanna Tyrowicz:
j.tyrowicz@grape.org.pl
fb | GRAPE.org
tt | GRAPE_ORG