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long-term inequality and poverty among the elderly in Belgium / Inégalités et pauvreté des personnes âgées: une projection à long terme Gijs Dekkers Federal Planning Bureau and CESO, Katholieke Universiteit Leuven Bureau Fédéral du Plan Analyses et prévisions économiques Joint work with Raphaël Desmet, Greet de Vil, Marie-Jeanne Festjens and the MALTESE team long-term inequality and poverty among the elderly in Belgium Goal of this presentation: • To provide a long term assessment of inequality and poverty among the elderly in Belgium • To assess the impact of two recent measures; the increase of the “guaranteed income of the elderly” (Grapa/IGO) by 14%, and the 17% increase of the minimum right per career year, both introduced in 2006. Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Overview of this presentation: • The dynamic microsimulation model MIDAS, version MALTESE. • Long term simulations of pension adequacy: the reference scenario • Two recent measures: a discussion • The increase of the Grapa/IGO • The increase of the minimum right for the elderly • Conclusions Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Overview of this presentation: • The dynamic microsimulation model MIDAS, version MALTESE. • Long term simulations of pension adequacy: the reference scenario • Two recent measures: a discussion • The increase of the Grapa/IGO • The increase of the minimum right for the elderly • Conclusions Bureau Fédéral du Plan Analyses et prévisions économiques 1. The dynamic microsimulation model MIDAS, version MALTESE (1/3). • Microsimulation for the Development of Adequacy and Sustainability – A ‘dynamic microsimulation model with cross-sectional dynamic ageing’. • MIDAS consists of three modules – Demographics: births, deaths, household formation and dissolution, education – Labour market: • Active states: work, private/public sector, civil servants, working hours, wages • Inactive states: in education, unemployment, disability, CELS, retirement, other – Social security module • First pillar pension scheme for employees, civil servants and independent workers • CELS benefit, disability pensions, unemployment benefits*, welfare benefit* Bureau Fédéral du Plan Analyses et prévisions économiques 1. The dynamic microsimulation model MIDAS, version MALTESE (2/3). • MIDAS does not (yet) take into account • Net immigration • Taxes and social contributions • MIDAS includes all relevant policy measures between 2002 and 2010 • MIDAS reproduces the observed developments of proportions of active and inactive states between 2002 and 2010. • MIDAS is as much as possible consistent with the simulation results and hypothesis of the semi-aggregate model MALTESE – MALTESE is used for the assessment of sustainability of social security of the Study Committee on Ageing (report 2009) – MIDAS is used for the assessment of (pension) adequacy of the Study Committee Bureau Fédéral du Plan Analyses et prévisions économiques 1. The dynamic microsimulation model MIDAS, version MALTESE (3/3). • For the simulation years after 2010, MIDAS adopts the assumptions and projections of MALTESE – “monetary alignment” on exogenous productivity growth rates (1.5% p.a. in the long run) – “state alignment” to MALTESE simulation results – An annual growth rate of of • 0.5% for the non lump sum allowances in the social security; • 1% for the lump sum allowances; • 1.25% for the wage cap • 1.25% for the minimum right per working year. Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Overview of this presentation: • The dynamic microsimulation model MIDAS, version MALTESE. • Long term simulations of pension adequacy: the reference scenario • Two recent measures: a discussion • The increase of the Grapa/IGO • The increase of the minimum right for the elderly • Conclusions Bureau Fédéral du Plan Analyses et prévisions économiques 2. Long term simulations of pension sustainability: the reference scenario and In the base scenario, the expected costs of ageing up to 2060 are estimated to Equal 8,2% GDP. This cost consists of pensions (+5,3%), health care (+4,2%) and other social expenses (-1,4%) Bureau Fédéral du Plan Analyses et prévisions économiques 2. Long term simulations of pension adequacy: the reference scenario 0 5 10 15 20 Poverty risk to status 2000 2010 2020 2030 Année Population totale Pensionnés 2040 2050 2060 Travailleurs Source: MIDAS %, poverty line 60% median equivalent income, modified OECD equivalence scale Bureau Fédéral du Plan Analyses et prévisions économiques 2. Long term simulations of pension adequacy: the reference scenario .15 .2 .25 .3 .35 Income inequality to status 2000 2010 2020 2030 Année Population totale Pensionnés 2040 2050 2060 Travailleurs Source: MIDAS Ginie, equivalent income, modified OECD equivalence scale Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Overview of this presentation: • The dynamic microsimulation model MIDAS, version MALTESE. • Long term simulations of pension adequacy: the reference scenario • Two recent measures: a discussion • The increase of the Grapa/IGO • The increase of the minimum right for the elderly • Conclusions Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion • the increase of the “guaranteed income of the elderly” (Grapa/IGO) by 14%, from December 1st 2006 onward. – This measure immediately increases the cost of ageing by 0.045% GDP. This extra cost is the result of the increase of the guaranteed income of the elderly among previous recipients, as well as the expansion of the number of beneficiaries. • the 17% increase of the minimum right per career year, from December 1st 2006 onward. – This measure increases the budgetary costs of ageing by 0.01% GDP in 2010, increasing to 0.05% in 2030 and 0.07% in 2060. How would the development of poverty and inequality of the elderly have been if this measure was not effectuated? Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion • the increase of the “guaranteed income of the elderly” (Grapa/IGO) by 14%, from December 1st 2006 onward. 0 5 10 15 20 Poverty risk to status (60% poverty line) 2000 2010 2020 2030 Année 2040 Population totale - Scénario de référence Travailleurs - Scénario de référence Pensionnés- Scénario de référence 2050 2060 Population totale Travailleurs Pensionnés Source: MIDAS Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion • the increase of the “guaranteed income of the elderly” (Grapa/IGO) by 14%, from December 1st 2006 onward. 0 10 20 30 40 Poverty risk to status (70% poverty line) 2000 2010 2020 2030 Année 2040 Population totale - Scénario de référence Travailleurs - Scénario de référence Pensionnés- Scénario de référence 2050 2060 Population totale Travailleurs Pensionnés Source: MIDAS Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion • the increase of the “guaranteed income of the elderly” (Grapa/IGO) by 14%, from December 1st 2006 onward. .15 .2 .25 .3 .35 Income inequality to status 2000 2010 2020 2030 Année 2040 Population totale - Scénario de référence Travailleurs - Scénario de référence Pensionnés - Scénario de référence 2050 2060 Population totale Travailleurs Pensionnés Source: MIDAS Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion the 17% increase of the minimum right per career year, both introduced from December 1st 2006 onward. 0 5 10 15 20 • 2000 2010 2020 2030 Année 2040 Population totale - Scénario de référence Travailleurs - Scénario de référence Pensionnés- Scénario de référence 2050 2060 Population totale Travailleurs Pensionnés Source: MIDAS Bureau Fédéral du Plan Analyses et prévisions économiques 3. Two recent measures: a discussion the 17% increase of the minimum right per career year, both introduced from December 1st 2006 onward. .15 .2 .25 .3 .35 • 2000 2010 2020 2030 Année 2040 Population totale - Scénario de référence Travailleurs - Scénario de référence Pensionnés - Scénario de référence 2050 2060 Population totale Travailleurs Pensionnés Source: MIDAS Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Overview of this presentation: • The dynamic microsimulation model MIDAS, version MALTESE. • Long term simulations of pension adequacy: the reference scenario • Two recent measures: a discussion • The increase of the Grapa/IGO • The increase of the minimum right for the elderly • Conclusions Bureau Fédéral du Plan Analyses et prévisions économiques Conclusions • The models MIDAS and MALTESE provide a joint assessment of the sustainability and adequacy of (among other things) pensions in the context of demographic ageing. • In the base scenario, poverty and inequality among the elderly is expected to decrease considerably. • This is for a part the result of the increase of the “the “guaranteed income of the elderly” (Grapa/IGO) by 14%, a policy measure that increases the costs of ageing immediately by about 0.045% GDP. • The increase by 17% of the minimum right per career year causes the cost of ageing to increase by 0.07% GDP in 2060. The impact of this measure on the poverty and inequality among the elderly is negligible. Bureau Fédéral du Plan Analyses et prévisions économiques long-term inequality and poverty among the elderly in Belgium Thank you / merci bien Bureau Fédéral du Plan Analyses et prévisions économiques Intermezzo: a brief word on state alignment ‘standard’ Monte Carlo simulation Pi=logit-1(βX) Aligned simulation to target x% Orderi=logit-1(βX+εi) Ui < Pi First xN individuals State 1 State 1 Person i State 2 order 1...n State 2 Ui < 1-Pi Bureau Fédéral du Plan Other (100-x)N individuals Analyses et prévisions économiques