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Pensions and retirement, Demography

Research articles · Apr 30, 2011

Micro simulations on the effects of ageing-related policy measures: The social affairs department of the Netherlands Ageing and Pensions Model

Jan-Maarten van Sonsbeek

VU University Amsterdam, Amsterdam; Ministry of Social Affairs and Employment, Den Haag

Volume 4(1) Spring 2011

Cite as: J. van Sonsbeek; 2011; Micro simulations on the effects of ageing-related policy measures: The social affairs department of the Netherlands Ageing and Pensions Model; International Journal of Microsimulation; 4(1); 72–99. doi: 10.34196/ijm.00046

Abstract

This paper describes a newly extended version of the dynamic micro simulation model SADNAP (Social Affairs Department of the Netherlands Ageing and Pensions model). SADNAP is being developed for calculating the financial and economic implications of the ageing of the population and of the ageing-related policy measures that are being proposed to cope with ageing. The model uses administrative datasets of Dutch public pension payments and entitlements for both public and private pensions. SADNAP has already been in use since 2007 for forecasting the state pension expenditures and for analysing the budgetary effects of policy changes.

The model has been extended in order to give a broader assessment of policy alternatives by providing insight into other important evaluation indicators like income redistribution and the retirement decision of workers. For the modelling of income redistribution a new micro data source with individual data on private pensions is combined with differentiation of mortality rates in order to gain a better insight in the income at the individual level within the population of pensioners. For the modelling of the retirement decision an option value model is developed in which key parameters vary at the individual level in order to benefit from the micro simulation approach. These extensions greatly enhance the performance of SADNAP. Besides the financial implications, additional insight can now be provided into the effects of policy measures on a set of key indicators.

In this paper both extensions are described in detail and a complete baseline projection of all key indicators is discussed.

This article contains 8 figures and 10 tables.

Figures

Figure 1. SADNAP model flow diagram.
Figure 2. Average wage and expected second-pillar pension by age.
Figure 3. State pension cost as % of GDP (including partner allowances) 2009–2080.
Figure 4. Changes in composition of pensioners population (2006-2050).
Figure 5. Projected rate of non-participation in the labour force non-participation rate by age.
Figure 6. The simulation process of the population forecast.
Figure 7. Composition of the simulated database from different data sources.
Figure 8. Composition of the 2005 population by age and participation category.

Tables

Table 1. Average life expectancies at 65 of the 2006–2045 pensioner cohorts.
Subgroup Average mortality age Δ Average
By income
 - 1st quintile 83.5 -2.5
 - 2nd quintile 84.5 -1.5
 - 3rd quintile 85.6 −0.4
 - 4th quintile 86.8 +0.8
 - 5th quintile 88.5 +2.5
By gender
 - Women 86.9 +0.9
 - Men 85.1 −0.9
By household status
 - Singles 84.4 −1.6
 - Cohabitants 86.7 +0.7
By origin
 - Natives 86.6 +0.6
 - Immigrants 84.0 −2.0
Total 86.0
Table 2. Option value parameters.
Parameter Mean value Distribution
 − κ (leisure preference) 2.0 U (1, 3)
 − ρ (time preference) 0.17 0
U(0, 0.05)
U(0.05, 0.1)
U(0.1, 0.2)
U(0.2, 1.0)
 − γ (risk aversion) 0.7 U(0.5, 0.9)
 − τ (expected wage decrease after age 60) 0.045 U(0, 0.09)
Table 3. Share of lifetime state pension income compared to share of state pension cohorts.
Subgroup Share of cohorts turning 65 Share of lifetime pension costs Ratio
By income
 - 1st quintile 19.4% 15.4% 0.79
 - 2nd quintile 19.8% 18.5% 0.93
 - 3rd quintile 20.0% 19.4% 0.97
 - 4th quintile 20.3% 21.8% 1.08
 - 5th quintile 20.5% 24.9% 1.21
By gender
 - Women 49.4% 52.6% 1.06
 - Men 50.6% 47.4% 0.94
By household status
 - Singles 30.6% 34.0% 1.11
 - Cohabitants 69.4% 66.0% 0.95
By origin
 - Natives 73.5% 82.4% 1.12
 - Immigrants 26.5% 17.6% 0.66
Table 4. Characteristics of retirees by retirement age (birth cohorts 1946–1970).
Retirement age Share of population retiring Time preference Leisure preference Risk aversion Wage decrease Share of disability
≤ 59 0.427
60 0.029 0.26 2.15 0.70 0.046 0.14
61 0.025 0.21 2.07 0.70 0.046 0.16
62 0.027 0.20 2.04 0.70 0.046 0.17
63 0.035 0.21 2.04 0.70 0.047 0.14
64 0.036 0.21 2.07 0.70 0.048 0.18
65 0.217 0.20 2.05 0.69 0.046 0.03
66 0.043 0.14 1.97 0.70 0.046 0.14
67 0.042 0.13 1.97 0.71 0.046 0.15
68 0.040 0.12 1.94 0.71 0.045 0.14
69 0.080 0.08 1.81 0.73 0.039 0.06
Table 5. Overview of key SADNAP results compared to other models.
Indicator Year SADNAP estimate Comparable estimate By
Grey pressure 2040 49% 49% CBS
State pension expenses 2040 9.6% 8.8% CPB based on 2004 population projection, would be 9.9% based on 2008 population projection
Number of state pensions 2024 4.132 mln 4.125 mln SVB 2009–2024 projection
Expected replacement rate when retiring All 0.73 0.73 0.64 CBS Euwals, de Mooij, van Vuuren (2009)
Gini coefficient 2040 0.29 0.23 Knoef et al. on household income (SADNAP estimate on individual income)
Retirement age 2007 61.9 61.7 Adviescommissie Arbeidparticipatie (2008)
Retirement age increase (compared to generous ERS) 2015 2.5 4 / 0 2 – 2.5 De Vos and Kapteyn for men / women Euwals, de Mooij, van Vuuren (2009)
Table 6. Some characteristics of the two main data sources on state pensions.
SVB file 2006 (65+) CBS entitlement file 2005 (15-64)
Number % Number %
Gender
 - Male 1,130,506 43.5 5,563,649 50.5
 - Female 1,469,568 56.5 5,458,248 49.5
Origin
 - Native6 9,656,948 87.6
 - Immigrant (1st gen) 1,364,949 12.4
Household status
 - Single 2,667,713 24.2
 - Cohabiting 8,337,017 75.8
State pension entitlement
 - Complete 2,200,342 84.6 9,443,153 85.7
 - Reduced 399,802 15.4 1,572,768 14.3
Country of residence
 - Netherlands 2,364,891 91.0
 - Abroad 235,183 9.0
Total 2,600,074 100.0 11,021,897 100.0
Table 7. Some characteristics of the main data source on company pensions.
State pension entitlements Private pension entitlements
Number % Number %
Gender
 - Male 5,563,649 50.5 3,151,280 54.2
 - Female 5,458,248 49.5 2,664,918 45.8
Origin
 - Native 9,656,948 87.6 5,288,526 90.9
 - Immigrant (1st gen) 1,364,949 12.4 527,672 9.1
Household status
 - Single 2,667,713 24.2 1,325,328 22.8
 - Cohabiting 8,337,017 75.8 4,484,873 77.2
State pension entitlement
 - Complete 9,443,153 85.7 5,074,905 87.3
 - Reduced 1,572,768 14.3 739,206 12.7
Participation status
 - Study 1,207,782 11.0 128,824 2.2
 - Work 6,916,620 62.9 4,474,776 76.9
 - Benefit 1,320,852 12.0 644,887 11.1
 - None 1,217,069 11.1 318,848 5.5
 - (Early) retired 342,141 3.1 246,483 4.2
Total 11,021,897 100.0 5,816,198 100.0
Table 8. Expected private pension by main subgroups.
Wage (mean) Expected private pension (mean) Expected replacement rate (median)
Age-category
 - 15-19 € 12,546 € 3,740 1.283
 - 20-24 € 20,605 € 7,005 0.857
 - 25-29 € 25,580 € 9,128 0.779
 - 30-34 € 28,623 € 10,445 0.754
 - 35-39 € 30,294 € 11,323 0.747
 - 40-44 € 31,855 € 12,194 0.729
 - 45-49 € 33,582 € 13,020 0.702
 - 50-54 € 34,911 € 13,668 0.675
 - 55-59 € 36,016 € 12,460 0.638
 - 60-64 € 36,594 € 10,335 0.575
Gender
 - Male € 37,892 € 13,965 0.644
 - Female € 21,984 € 8,275 0.839
Origin
 - Native € 31,008 € 11,714 0.743
 - Immigrant € 27,282 € 7,791 0.607
Household status
 - Single € 28,989 € 9,952 0.761
 - Cohabiting € 31,147 € 11,767 0.725
State pension entitlement
 - Complete € 30,536 € 11,628 0.751
 - Reduced € 32,062 € 9,484 0.576
All € 30,703 € 11,394 0.732
Table 9. presents an overview of the macro data sources used.
Age Gender Ethnicity Household status Participatio n status Income
Birth cohorts n/a E E n/a n/a n/a
Immigrant cohorts E E E - - -
Mortality rates E E I I - I
Emigration rates E E E - - -
Cohabiting rates E E - n/a - -
Participation rates E E - - n/a -
Benefit rates E E - - E -
Forecasting accuracy for year 2000.
Pension cost (× € 1 mln.) Pensioners population (× 1,000) Working population (× 1,000)
State pension Partner allowance Total pension cost Total cost as %GDP Number of pensioners % reduced pensions % cohabitants Working population %particip. % particip. Fem. 55–64
2009 26,363 1403 27,765 4,85% 2,748 15,0% 61,3% 7468 74,7% 36,9%
2010 27,087 1,444 28,532 4,98% 2,843 15,5% 61,9% 7461 74,9% 37,9%
2011 28,024 1,535 29,559 5,16% 2,965 15,9% 62,9% 7,436 75,2% 40,5%
2012 29,011 1,640 30,651 5,35% 3,074 16,4% 63,6% 7,419 75,4% 42,5%
2013 29,905 1,686 31,591 5,51% 3,171 16,9% 64,1% 7,403 75,6% 43,4%
2014 30,750 1,669 32,419 5,66% 3,263 17,3% 64,3% 7,400 75,8% 44,8%
2015 31,528 1,671 33,199 5,79% 3,340 17,7% 64,3% 7,377 75,7% 45,2%
2016 32,237 1,624 33,860 5,91% 3,422 18,2% 64,8% 7,363 75,8% 46,0%
2017 32,968 1,610 34,578 6,04% 3,503 18,5% 64,9% 7,365 76,0% 47,9%
2018 33,753 1,637 35,390 6,18% 3,588 18,8% 65,0% 7,364 76,1% 48,5%
2019 34,552 1,591 36,144 6,31% 3,669 19,1% 64,8% 7,355 76,1% 49,5%
2020 35,352 1,567 36,919 6,44% 3,749 19,3% 64,7% 7,353 76,2% 51,4%
2021 36,146 1,584 37,730 6,59% 3,831 19,7% 64,7% 7,298 75,8% 50,9%
2022 36,943 1,583 38,526 6,72% 3,912 20,0% 64,5% 7,235 75,4% 49,6%
2023 37,815 1,586 39,401 6,88% 4,009 20,3% 64,5% 7,199 75,3% 48,6%
2024 38,687 1,627 40,314 7,04% 4,090 20,6% 64,3% 7,166 75,2% 48,5%
2,025 39,514 1,663 41,177 7,19% 4,173 20,9% 64,0% 7,121 75,1% 47,8%
2,026 40,380 1,643 42,023 7,34% 4,257 21,2% 63,6% 7,087 75,1% 47,8%
2,027 41,254 1,642 42,896 7,49% 4,342 21,5% 63,3% 7,050 75,1% 48,4%
2,028 42,130 1,665 43,795 7,64% 4,430 21,8% 63,1% 7,028 75,3% 48,7%
2,029 43,013 1,690 44,703 7,80% 4,515 22,2% 62,9% 6,988 75,3% 48,2%
2,030 43,837 1,676 45,513 7,94% 4,597 22,5% 62,8% 6,948 75,3% 48,3%
2,031 44,549 1,629 46,178 8,06% 4,662 22,9% 62,6% 6,940 75,6% 49,2%
2,032 45,240 1,655 46,895 8,19% 4,736 23,2% 62,3% 6,908 75,7% 49,7%
2,033 45,963 1,684 47,647 8,32% 4,808 23,6% 62,1% 6,895 75,9% 49,6%
2,034 46,694 1,659 48,354 8,44% 4,884 24,1% 61,8% 6,865 76,0% 50,4%
2,035 47,363 1,630 48,993 8,55% 4,945 24,7% 61,6% 6,862 76,3% 50,6%
2,036 47,931 1,617 49,548 8,65% 4,995 25,2% 61,1% 6,850 76,4% 50,8%
2,037 48,342 1,591 49,933 8,72% 5,023 25,7% 60,6% 6,864 76,7% 51,3%
2,038 48,599 1,542 50,141 8,75% 5,048 26,2% 60,3% 6,873 76,8% 51,6%
2,039 48,794 1,478 50,272 8,77% 5,060 26,9% 59,6% 6,866 76,6% 51,2%
2,040 48,869 1,409 50,277 8,78% 5,063 27,5% 59,2% 6,887 76,7% 51,6%
2,041 48,858 1,353 50,210 8,76% 5,066 28,2% 58,8% 6,899 76,7% 50,3%
2,042 48,834 1,276 50,110 8,75% 5,065 29,0% 58,2% 6,937 76,8% 50,6%
2,043 48,768 1,210 49,977 8,72% 5,065 29,8% 57,6% 6,967 77,0% 50,8%
2,044 48,666 1,176 49,842 8,70% 5,063 30,7% 57,1% 6,980 76,9% 49,6%
2,045 48,596 1,160 49,756 8,68% 5,068 31,4% 56,7% 7,010 77,1% 50,3%
2,046 48,460 1,148 49,608 8,66% 5,060 32,2% 56,2% 7,035 77,1% 51,1%
2,047 48,216 1,095 49,311 8,61% 5,049 33,1% 55,6% 7,073 77,2% 51,7%
2,048 47,911 1,054 48,966 8,55% 5,035 34,0% 55,4% 7,111 77,4% 52,1%
2,049 47,604 1,045 48,649 8,49% 5,031 34,9% 54,9% 7,128 77,3% 53,0%
2,050 47,272 1,064 48,337 8,44% 5,022 35,9% 54,8% 7,129 77,1% 52,8%