1. Exploring the potential of microsimulation for the study of poverty, health, and social security in the developing world. The MicroHGC model IMA 2011 Martin Spielauer (IIASA) Landis MacKellar (IIASA)

2. Organization -Context -The MicroHGC Model -General outline -Implementation -Illustrative results -Life course income -Distribution of returns -Pension income & poverty -Conclusions & Discussion

3. Context -Technical Assistance project of the Asian Development Bank: introduction of the New Pension System (NPS) in India -Examples from: Landis MacKellar, Martin Spielauer (forthcoming 2011) NPS and the Individual Saver: a Microsimulation Analysis. In: Implementing Pension Reforms for Financial Inclusion: Policy Issues and Options for India; Asian Development Bank -MicroHGC: generic version, developed at IIASA -Tool for research & capacity building -MS for study of poverty, health & social security

4. Context -Developing world setting -Less detailed data -Fundamental policy choices -High inequality (no mean/representative agent) -MS complementing stylized macro accounting models -Adding flexibility & distributions; reproducing macro -Transparent, simple to understand and operate -Evolvement of project: -actuarial macro model -Idea to add calculations for some “typical cases” -Cases, cohorts, population.. -… reproduction of macro model with added information

5. Context – Indian NPS -The NPS is a version of the public sector pension plan for “unorganized sector” = 89% of population -Voluntary, minimum contribution of 500Rs (10$) / month -Enhanced investment choices (investment strategy & 6 funds) -Non-withdrawable -EET tax regime: contribution & accrued earnings exempt, Taxable at withdrawal (ongoing discussion) -Low fees compared to existing private plans -2$PPP/day poverty line; 1.25US$ nominal = 60Rs -Median male work income ~3000 Rs/month (60US$)

6. Model – General Outline BehaviourMacroMicro FertilityUN projection, urban / rural # births + list of typical families Open population, case based MortalityUrban / rural, 1% decrease per year identical Migration1% rural -> urbanidentical LMPscenarios+ duration in state WagesAverage, fixed growth scenarios + distribution: log-normal Gini 0.36 + mobility Sickness, disabilityScenarios Pension savingFixed %+ boundary condition: 2$PPP, minimum contribution 500Rs, normal & max saving rate NPSFixed interest, Stylized fees, enrolment scenarios, annuitized at 60 + Detailed fee structure + Rule-based enrolment + inheritance

7. Model – Implementation -Implemented in the generic microsimulation language Modgen developed and maintained at Statistics Canada

8. Illustration: Life course income, 1992 cohort

9. Illustration: Life course income, 2002 cohort

10. Illustration: Distribution of IRR, 1992 cohort

11. Illustration: Pensions by earning deciles

12. Illustration: Pensions and poverty

13. Illustration: Pensions and health expenditures

14. Illustration: Pensions and fees

15. Conclusions -Application side -Illustration of limits of private saving for old age income security -Enhancements -Education -Generic tool, capacity building -Questions concerning microsimulation: -Do such simple stylized models make sense (or leave this type of modeling to macro community?) -Are developing countries a good application area of microsimulation -Best strategy for improving MS models for this type of application?