1. Microsimulations on the effects of ageing-related policy measures Jan-Maarten van Sonsbeek (VU University / Ministry of Social Affairs and Employment)

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. Participation by Age 8 Microsimulations on the effects of ageing-related policy measures - Data

9. Wage and pension by age 9 Microsimulations on the effects of ageing-related policy measures - Data

10. Replacement rates by subgroup 10 Microsimulations on the effects of ageing-related policy measures - Data

11. 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

12. The demographic model 12 Microsimulations on the effects of ageing-related policy measures - Model

13. The simulated database 13 Microsimulations on the effects of ageing-related policy measures - Model

16. Differences in life expectancy Microsimulations on the effects of ageing-related policy measures - Results 16

17. Baseline redistribution Microsimulations on the effects of ageing-related policy measures - Results 17

18. Baseline retirement age pattern 18 Microsimulations on the effects of ageing-related policy measures - Results

19. 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

20. 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

21. Effect on government budget 21 Microsimulations on the effects of ageing-related policy measures - Results

22. Tax exemption of pensioners 22 Microsimulations on the effects of ageing-related policy measures - Results

23. Effect on retirement age 23 Microsimulations on the effects of ageing-related policy measures - Results

24. 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

25. Overall assessment 25 Microsimulations on the effects of ageing-related policy measures - Results

26. 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