Estimating pension liabilities

A fiscal outlook for Poland using Generational Accounts

Janusz Jablonowski
National Bank of Poland

Christoph Mueller
Research Center for Generational Contracts in Freiburg

Bernd Raffelhschen
Research Center for Generational Contracts in Freiburg
 Estimating pension liabilities
Outline

A fiscal outlook for Poland using Generational Accounts (and more )

1. Scope of the fiscal projection

2. Modelling approach

3. Results and indicators

4. Conclusion and discussion

 Estimating pension liabilities
Main 1. Scopeofofthe
features the
The
GAfiscal projection
Freiburg
in relation
Model What
to other is modelled
projections (I) ?
 Estimating pension liabilities
Main1.features
Scope ofof the
the fiscal
GA projection
in relation What
to other is modelled ?
projections
 Estimating pension liabilities
Long-term fiscal
2. The
Modelling
projections
Freiburgapproach

Model
the Freiburg Model

Step 1: Derive age- and gender-specific profiles from micro data

Profile for hospital treatment

 A fiscal 2. The
outlookfiscal
for Modelling
Estimating
Poland
Freiburgapproach
pension
using
Model liabilities
Generational Accounts
Long-term projections the Freiburg Model

Step 2: Combine age- and gender-specific profiles with the population structure

...weighted with cohort sizes

&
 2. Estimating
Long-term fiscal
Modelling pension liabilities
projections
approach
the Freiburg Model

Step 3: Match micro and macro data

 Estimating pension liabilities
2. The
Long-term fiscalModelling
Freiburgapproach
projections Model
the Freiburg Model

Step 4: Project expenditures and revenues (I)

weighted with future cohort sizes

&
 Estimating pension liabilities
Long-term fiscal
2. The
Modelling
projections
Freiburgapproach

Model
the Freiburg Model

Step 4: Project expenditures and revenues (II)

 Estimating pension liabilities
The 2. Modellingprocedure
computation approach(V)

Building a new pension model to reflect the profound pension reform of 1999

from standard profile approach probability approach (incl. NDC accounts)

Contributions & NDC = NDC pensions

accounts
(determined by wage, (determined by contributions
contribution rates, retirement retirement behaviour, growth, etc.)
behaviour, etc.)
 Estimating pension liabilities
3.computation
The Results andprocedure
indicators (V)

Explicit debt is only the fiscal iceberg Implicit debt is four times higher

Sustainability gap (status quo)

base year 2007, r=3%, g=1,5%

228,1% of GDP

Implicit Debt
182,8 %
228,1 %

45,2 %
Explicit Debt
 Estimating pension liabilities
3.computation
The Results andprocedure
indicators (V)

Generational Accounts a tool to assess intergenerational redistribution

Generational accounts, status quo

base year 2007, r=3%, g=1,5%

250,00

200,00

150,00

100,00
net tax payments in 1000 PLN

50,00

0,00

-50,00

-100,00

-150,00

-200,00

-250,00

-300,00

-350,00

-400,00
-1 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Age
 Estimating pension liabilities
Modification
3. Results
of
The
theFreiburg
standard
and indicators
Model
GA framework (I)

Which fiscal category shall policymakers adjust?

VAT? Pension contributions? Disability benefits? Free

healthcare services? etc?

Maybe Generational Accounting missed popularity due to a

lack of more precise suggestions, which category could be
modified to regain intergenerational equilibrium

???
 Modification of
The 3.Freiburg
the Results
Estimating
standard and
pension indicators(II)
GAliabilities
Modelframework

The modification of the standard method:

Isolations
of particular subsystems may be a a better tool for
policy makers

By disaggregating we get these:

this:

228,1% 105,8
97,3
83,1

47,5

16,2
6,3
% of GDP
-10,2
Implicit Debt
182,8
228,1

-163,1

Explicit 45,2
ZUS old age Public Health disability & farmers accident sickness Miners all others
pensions Care survivors pension
 Modification of
The 3.Freiburg
the Results
Estimating
standard and
pension indicators(II)
GAliabilities
Modelframework

Which are the major drivers of the Polish fiscal unsustainability? (I)

The standard isolation approach:

Isolated sustainability gaps (status quo)

base year 2007, r=3%, g=1.5%

105,8
97,3
83,1

47,5

16,2
6,3
% of GDP

-10,2

-163,1

ZUS old age Public Health disability & farmers pension accident sickness 45,2 %Miners all others
pensions Care survivors
 Modification ofThe 3.Freiburg
the Results
Estimating
standard andliabilities
pension
Model
GA indicators(III)
framework

Two types of isolations

Subsystems with Subsystems financed

own revenues from taxes

ZUS funds: for Civil servants (uniformed

pensions, disability, accident, services, judges); education
sickness; NFZ; farmers social
insurance; ...

CONSEQUENCES

Revenue side: Revenue side:

For
varying age- and gender- comparability: flat profile, balanced
specific profile, balanced adjusted budget (in base year)
budget not necessarily option
 3. Results
Estimating andliabilities
pension indicators

Which are the major drivers of the Polish fiscal unsustainability? (II)

The balanced budget isolation approach:

Isolated sustainability gaps (status quo)

base year 2007, r=3%, g=1.5%

194,2
% of GDP

68,3

31,8
14,2
3,9

-2,6

-47,4

-79,5

ZUS old age Public Health disability & farmers pension Miners civil servants education all others
pensions Care survivors
 3. Results
Estimating and indicators
pension liabilities

A tool to assess reform measures

The example of the 1999 pension reform:

Cash Flows of ZUS pension contributions and expenditures

base year 2007, r=0%, g=1,5%
 3. Results
Estimating andliabilities
pension indicators

GA a tool to assess reform measures

Sustainability examination of pension reforms:

Isolated sustainability gaps of the ZUS old age pension system

base year 2007, r=3%, g=1.5%
400

350 338,2

300

250
in percen t of GDP

200

150

105,8 101,8 98,7

100

50

0
No reform of 1999 Status quo Equalizing retirement ages to Decreasing FDC contributions
65 rates
 3. Results
Estimating andliabilities
pension indicators

In the coming 20 years ZUS will be confronted with an inreasing mismatch

of contributions and expenditures

Cash flows: impact of the recently discussed pension reforms (I)

Cash Flows of ZUS pension contributions and expenditures
base year 2007, r=0%, g=AWG
 3. Results
Estimating andliabilities
pension indicators

Growth assumptions make a difference

Cash flows: impact of the recently discussed pension reforms (II)

Cash Flows of ZUS pension contributions and expenditures

base year 2007, r=0%, g=1,5%
 3. Results
Estimating andliabilities
pension indicators

Both MoF reforms could partially bridge the ZUS deficits in the coming years

Cash flows: impact of the recently discussed pension reforms (III) both reforms combined !

Cash Flows of ZUS pension contributions and expenditures

base year 2007, r=0%, g=AWG
 3. Results
Estimating andliabilities
pension indicators

A closer look at the health care system a possible major driver of fiscal unsustainability

Isolated sustainability gaps of NFZ

base year 2007, r=3%, g=1.5%
 3. Results
Estimating andliabilities
pension indicators

Which contribtution rates are we willing to bear in coming decades?

Nominal healthcare contribution rate to balance future NFZ budgets:

22,0

20,0

18,0

16,0
contribution rate in %

14,0

12,0

10,0

8,0

6,0
2010 2015 2020 2025 2030 2035 2040 2045 2050
year

Standard scenario Cost pressure scenario

 4.Estimating
Conclusionpension
andliabilities
Discussion

Conclusion and Discussion