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Microsimulations on the effects of ageing-related policy measures<br />Jan-Maarten van Sonsbeek <br />(VU University / Min...
Context<br />Thesis consisting of four papers:<br />A Microsimulation Analysis of the 2006 Regime Change in the Dutch Disa...
Contents<br />Background: Pension system, ageing in the Netherlands<br />Data: Micro data on state pension payments and st...
System characteristics<br />1st pillar (state) pension: <br />PAYG, contributions (2/3) + taxes (1/3)<br />Basic income le...
1st pillar state pension<br />Fixed retirement age 65<br />From 2010 retirement window 65 - 70<br />Contributions partiall...
Ageing in the Netherlands<br />Population forecast (CBS, 2008)<br />Nr. of 65+: 2.5 mln. (2009)  4.5 mln. (2040)<br />Gre...
Data sources<br />Micro data<br />State pension payments (SVB, 2.6 mln. – 2006)<br />State pension entitlements (CBS, 11.0...
Participation by Age<br />8<br />Microsimulations on the effects of ageing-related policy measures - Data<br />
Wage and pension by age<br />9<br />Microsimulations on the effects of ageing-related policy measures - Data<br />
Replacement rates by subgroup<br />10<br />Microsimulations on the effects of ageing-related policy measures - Data<br />
The SADNAP Model<br />SAS-based<br />Demographic model: <br />Births, Deaths, Immigration, Emigration<br />Differentiation...
The demographic model<br />12<br />Microsimulations on the effects of ageing-related policy measures - Model<br />
The simulated database<br />13<br />Microsimulations on the effects of ageing-related policy measures - Model<br />
Option value model<br />Individual heterogeneity<br />Leisure preference (k) ~ U(1-3)<br />Time preference (ρ) ~ U(0; 0-0....
Peak value (Coile & Gruber, 1998): Retirement only</li></li></ul><li>Baseline scenario<br />2006 macro forecast (€ 48.7 bl...
Differences in life expectancy<br />Microsimulations on the effects of ageing-related policy measures - Results<br />16<br />
Baseline redistribution<br />Microsimulations on the effects of ageing-related policy measures - Results<br />17<br />
Baseline retirement age pattern<br />18<br />Microsimulations on the effects of ageing-related policy measures - Results<b...
Sustainability of public finance<br />Main policy directions in case of unsustainability<br />Let future generations pay t...
Policy Measures<br />Abolishment partner allowance<br />Decided 1996, in force 2015<br />Raising retirement age 65  67<br...
Effect on government budget<br />21<br />Microsimulations on the effects of ageing-related policy measures - Results<br />
Tax exemption of pensioners<br />22<br />Microsimulations on the effects of ageing-related policy measures - Results<br />
Effect on retirement age<br />23<br />Microsimulations on the effects of ageing-related policy measures - Results<br />
Effect on redistribution<br />Generic measure: Gini coefficient<br />Specific measure: Share of lifetime pension income<br...
Overall assessment<br />25<br />Microsimulations on the effects of ageing-related policy measures - Results<br />
Conclusion<br />Baseline<br />Upwards pressure from population forecast<br />Mitigated by decreasing cost per person<br />...
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Vansonsbeek Presentation

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

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