Taking two to tango: the joint prospective assessment of pension sustainability and adequacy in Belgium

This paper is produced on request of the Indicator Subgroup of the Social Protection Committee. It describes how semi-aggregate and microsimulation models are used in unison to assess the prospective sustainability and adequacy of first-pillar pensions in BelgiumSince about a decade, the pension policy of member states is a focal point of attention on the European level. Traditionally, the focus was primarily on securing the financial sustainability. But a sensible as-sessment of financial sustainability cannot do without taking into account the social impact of ageing, budgetary and pension policy. Specifically should the development of pension adequacy be taken into account. This presentation discusses how such integrated approach using shared demographic and macroeco-nomic assumptions has been developed in Belgium. It describes the dynamic microsimulation model MIDAS (an acronym for ‘Microsimulation for the Development of Adequacy and Sustainability’), high-lighting how it aligns to the simulation results of the semi-aggregate model MALTESE. Three example of a joint assessment of recent pension policy on both the sustainability and adequacy of pensions in Belgium are discussed: the recent increase of the means-tested minimum benefit for the elderly, a change of the long term growth rate of wages, and a change in the employment rate of the older active population. The two models demonstrate that the important increase of the means-tested minimum pension benefit in 2006 has a limited impact on the costs of ageing (0.045% GDP), but a very important and immediate impact on the risk of poverty among the elderly. Furthermore, they show that a higher growth rate or a higher employment rate among the older active population have a comparable impact on the budgetary costs of ageing (from 5.3% GDP in the base-variant to 4.5 or 4.7% GDP), but that the impacts on the development of the risk of poverty among the elderly are far from comparable. Contrary to the high-employment rate variant, the high-growth rate variant results in a gradual increase in the risk of poverty among the elderly from 2020 on. Finally, some recent developments that may be relevant to the members of the SCP/ISG are presented and discussed in ‘sneak preview’. The implementation of SIA in Europe is hampered by a lack of ap-propriate tools and models to assess social impacts. The tool LIAM 2 might partially resolve this prob-lem, because it will be freely available to all those that want to engage in dynamic microsimulation. The foundations of a FP7 research proposal (EURODYM) are being laid, which should result in jointly de-veloping a general ‘MIDAS-like’ dynamic microsimulation for various member states.nrpages: 20status: publishe