1. plan.be The Sustainability and Adequacy of Pensions in Belgium Joint assessments with MIDAS and MALTESE Gijs Dekkers 2nd Tecnical meeting on the Use of Administrative Data and Modelling Techniques in the Monitoring of Pension Systems EC and the Spanish Presidency, Madrid, 23 March 2010. 1

2. plan.be Overview of this presentation 2 I.General Introduction to MALTESE and MIDAS II.The financial consequences of social policy: two examples considered I.An increase of the minimum right per career year with 17% from October 2006 on II.An increase of the Garanteed Income for the Elderly (inkomensgarantie voor ouderen) with 13,7% from December 2006 on III.Work in PROGRESS and conclusions

3. plan.be 3 I. General Introduction to MALTESE and MIDAS

4. plan.be MIDAS and MALTESE: institutional context Study Committee on Demographic Ageing Study Committee on Demographic Ageing MALTESE MIDAS Technical support Assumptions and hypotheses Alignment On projections FINANCIAL SUSTAINABILITY OF THE PENSION SYSTEM ADEQUACY OF PENSIONS 4

5. plan.be THE MALTESE SYSTEM: MODEL FOR ANALYSIS OF LONG TERM EVOLUTION OF SOCIAL EXPENDITURE 5 SOCIAL BENEFITS EXPENDITURE BY SCHEME AND REGIME SOCIODEMOGRAPHIC SCENARIO DEMOGRAPHIC SCENARIO SOCIODEMOGRAPHIC PROJECTION By age group and gender MACROECONOMIC SCENARIO MACROECONOMIC PROJECTION: Employment, GDP, wages, … DEMOGRAPHIC PROJECTION By age group and gender Number of beneficiaries Average amount HEALTH CARE EXPENDITURES SOCIAL SECURITY ACCOUNTS Revenues, expenditures, balance, debt SOCIAL POLICY SCENARIO BUDGETARY POLICY SCENARIO GENERAL GOVERNMENT ACCOUNTS Revenues, expenditures, balance, debt

6. plan.be MIDAS - Microsimulation for the Development of Adequacy and Sustainability Starting dataset: the Panel Dataset on Belgian Households PSBH of 2002 DEMOGRAPHIC MODULE LABOUR MARKET MODULE PENSION & BENEFITS MODULE Mortality, fertility, education, ‘marriage market’ Employment, public and private sector, civil servants, unemployment, disability, CELS, retirement Hours of work per month, months of work per year, earnings per hour 1st pillar pension benefits - employees’ scheme - civil servants scheme - independent workers’ scheme CELS benefits disability pension benefits unemployment benefits welfare benefits 6

7. plan.be Consistency between MALTESE and MIDAS 1.Both MIDAS and MALTESE include all policy measures introduced up to 2009, including the increases by 17 en 13.7% of the minimum right per career year and the Guaranteed Income of the Elderly between 2006 and 2007. 2. Both models apply the parameters of the Generational pact : wage ceiling and minimum right per career year in employees’ pension benefit : 1.25% indexation pension benefits employees’ scheme and independents’ scheme wage-related : 0.50% indexation minimum (pension) benefits: 1% 3. Midas aligns to MALTESE, and hence adopts its projections 7

8. plan.be The application of alignment in MIDAS State alignment fertility, mortality (to gender, age, simulation year) employment rate (to gender, age category, simulation year) unemployment rate(idem) rate of independent workers (idem) rate of civil servants (idem) disability rate (idem) CELS rate (idem) Monetary alignment gross wages (to gender and simulation year) 8

9. plan.be Replacement ratio- base scenario 9

10. plan.be Poverty risk to status – base scenario 10

11. plan.be Income inequality (Gini) to status – base scenario 11

12. plan.be II. The financial consequences of social policy: two examples considered 1. An increase of the minimum right per career year with 17% from October 2006 on 12

13. plan.be What does the minimum right per career year do? 13

14. plan.be The budgetary impact of the increase of the minimum right per career year (% GDP) 14

15. plan.be The impact of the increase of the Minimum Right per Career Year on poverty risk to status (%) 15

16. plan.be The impact of the increase of the Minimum Right per Career Year on poverty risk to status (%) poverty line 70% of median equivalent income 16

17. plan.be 2. An increase of the Garanteed Income for the Elderly (InkomensGarantie voor Ouderen - IGO) with 13,7% from December 2006 on 17 II. The financial consequences of social policy: two examples considered

18. plan.be The budgetary impact of an increase of the IGO with 13.7% Increase of 0.045% GDP 18

19. plan.be An increase of the IGO with 13.7%: what determines the budgetary impact? 19

20. plan.be The impact of the increase of the Guaranteed Income of the Elderly on the Poverty risk to status (%) 20

21. plan.be 21 III. Work in PROGRESS and conclusions

22. plan.be 1.Consistency of MIDAS with MALTESE 2.extentions of MIDAS 1.Gross-net trajectory 2.The 2 nd pension pillar 3.Replacing the starting dataset by administrative data 4.Besides the PROGRESS deliverables, some extentions and further developments are necessary: net immigration, weights, further monetary alignment, … The goals of the PROGRESS project SIPEBE 22

23. plan.be Conclusions 1.Thanks to PROGRESS and the collaboration with the Federal Public Service Social Security, the FPB is well under way to develop MIDAS into a tool for the assessment of pensions in conjunction with MALTESE 2.This presentation uses the capacity of joint analysis with both models to…  Simulate the impact of the 17% increase of the minimum right per career year  Expenditures increased by 0.07% GDP in total, but impact will be gradual  No impact on poverty risk with 60% poverty line  Long-run impact of poverty risk with 70% poverty line  Simulate the impact of the 13.7% increase of the Guaranteed Income of the elderly  Expenditures increased by 0.045% GDP in total, roughly equally spread over all years  Considerable and nearly immediate impact on poverty risk with 60% poverty line 23 Back to title

24. plan.be Consistency between MALTESE and MIDAS: alignment in MIDAS Several procedures that aim to make the model reproduce one or more exogenous aggregates. state alignment monetary alignment State 1 State 2 Persoon i U i < P i P i =logit- 1 (βX) U i < 1-P i ‘standard’ Monte Carlo simulationAligned simulation to target x% State 1 State 2 Rangorde 1...n Eerste xN personen Rangorde i =logit- 1 (βX+ε i ) Overige (100-x)N personen Run the model y i =βX i + u i (2001, t) Sum to aggregate ; derive aggregate growth rate gY Monetary alignment target growth rate gx t Derive corrected growth rates Run the model y i =βX i + u i (2001) Apply corrected growth rate -> t 24