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8/9/2019 Fiscal Outlook for Poland using Generational Accounts
1/25
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
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
2/25
Estimating pension liabilities
1. Scope of the fiscal projection
2. Modelling approach
3. Results and indicators
4. Conclusion and discussion
Outline
A fiscal outlook for Poland using Generational Accounts (and more )
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
3/25
Estimating pension liabilities
The Freiburg Model
Main features of the GA in relation to other projections (I)
1. Scope of the fiscal projection What is modelled ?
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
4/25
Estimating pension liabilities
Main features of the GA in relation to other projections
1. Scope of the fiscal projection What is modelled ?
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
5/25
Estimating pension liabilities
Step 1: Derive age- and gender-specific profiles from micro data
Profile for hospital treatment
The Freiburg Model
Long-term fiscal projections the Freiburg Model
2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
6/25
Estimating pension liabilities
Step 2: Combine age- and gender-specific profiles with the population structure
&
The Freiburg ModelLong-term fiscal projections the Freiburg ModelA fiscal outlook for Poland using Generational Accounts
...weighted with cohort sizes
2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
7/25
Estimating pension liabilities
Step 3: Match micro and macro data
Long-term fiscal projections the Freiburg Model2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
8/25
Estimating pension liabilities
Step 4: Project expenditures and revenues (I)
&
The Freiburg ModelLong-term fiscal projections the Freiburg Model
weighted with future cohort sizes
2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
9/25
Estimating pension liabilities
Step 4: Project expenditures and revenues (II)
The Freiburg ModelLong-term fiscal projections the Freiburg Model2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
10/25
Estimating pension liabilities
from standardprofile approach probability approach(incl. NDC accounts)
NDCaccounts
NDC pensions
(determined by contributions
retirement behaviour, growth, etc.)
Contributions
(determined by wage,
contribution rates, retirement
behaviour, etc.)
& =
The computation procedure (V)
Building anew pension modelto reflect the profound pension reform of 1999
2. Modelling approach
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
11/25
Estimating pension liabilitiesThe computation procedure (V)3. Results and indicators
Sustainability gap (status quo)base year 2007, r=3%, g=1,5%
Implicit Debt
Explicit Debt
228,1 %
182,8 %
45,2 %
228,1% of GDP
Explicit debt is only the fiscal iceberg Implicit debt is four times higher
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
12/25
Estimating pension liabilitiesThe computation procedure (V)
Generational Accounts a tool to assess intergenerational redistribution
-400,00
-350,00
-300,00
-250,00
-200,00
-150,00
-100,00
-50,00
0,00
50,00
100,00
150,00
200,00
250,00
-1 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
nettaxpaymentsin1000PLN
Age
Generational accounts, status quobase year 2007, r=3%, g=1,5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
13/25
Estimating pension liabilitiesThe Freiburg ModelModification of the standard 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 alack of more precise suggestions, which category could be
modified to regain intergenerational equilibrium
???
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
14/25
Estimating pension liabilitiesThe Freiburg ModelModification of the standard GA framework (II)
The modification of the standard method:Isolations
of particular subsystems may be a a better tool forpolicy makers
By disaggregatingthis:
we get these:
Implicit Debt
Explicit
228,1182,8
45,2
228,1% 105,8
83,1
97,3
47,5
6,3
-10,2
16,2
-163,1
ZUS old age
pensions
Public Health
Care
disability &
survivors
farmers
pension
accident sickness Miners all others
%
ofGDP
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
15/25
Estimating pension liabilitiesThe Freiburg ModelModification of the standard GA framework (II)
Which are the major drivers of the Polish fiscal unsustainability? (I)
105,8
83,1
97,3
47,5
6,3
-10,2
16,2
-163,1
ZUS old agepensions
Public HealthCare
disability &survivors
farmers pension accident sickness Miners all others
%
ofGDP
45,2 %
The standard isolation approach:
Isolated sustainability gaps (status quo)base year 2007, r=3%, g=1.5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
16/25
Estimating pension liabilitiesThe Freiburg ModelModification of the standard GA framework (III)
Two types of isolations
Subsystems withown revenues
Subsystems financedfrom taxes
ZUS funds: forpensions, disability, accident,sickness; NFZ; farmers socialinsurance; ...
Civil servants (uniformedservices, judges); education
CONSEQUENCES
Revenue side:
flat profile, balanced
budget (in base year)
Revenue side:
varying age- and gender-
specific profile, balanced
budget not necessarily
Forcomparability:
adjusted
option
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
17/25
Estimating pension liabilities
-47,4
68,3
31,8
-2,6
3,914,2
-79,5
194,2
ZUS old agepensions
Public HealthCare
disability &survivors
farmers pension Miners civil servants education all others
%
ofGDP
The balanced budget isolation approach:
Which are the major drivers of the Polish fiscal unsustainability? (II)
Isolated sustainability gaps (status quo)base year 2007, r=3%, g=1.5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
18/25
Estimating pension liabilities
A tool to assess reform measures
The example of the 1999 pension reform:
Cash Flows of ZUS pension contributions and expendituresbase year 2007, r=0%, g=1,5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
19/25
Estimating pension liabilities
GA a tool to assess reform measures
Sustainability examination of pension reforms:
338,2
105,8 101,8 98,7
0
50
100
150
200
250
300
350
400
No reform of 1999 Status quo Equalizing retirement ages to65
Decreasing FDC contributionsrates
inpe
rcentofGDP
Isolated sustainability gaps of the ZUS old age pension systembase year 2007, r=3%, g=1.5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
20/25
Estimating pension liabilities
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 and indicators
In the coming 20 years ZUS will be confronted with an inreasing mismatchof contributions and expenditures
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
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Estimating pension liabilities
Cash Flows of ZUS pension contributions and expenditures
base year 2007, r=0%, g=1,5%
Cash flows: impact of the recently discussed pension reforms (II)
Growth assumptions make a difference
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
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Estimating pension liabilities
Cash flows: impact of the recently discussed pension reforms (III) both reforms combined !
Both MoF reforms could partially bridge the ZUS deficits in the coming years
Cash Flows of ZUS pension contributions and expenditures
base year 2007, r=0%, g=AWG
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
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Estimating pension liabilities
A closer look at the health care system a possible major driver of fiscal unsustainability
Isolated sustainability gaps of NFZbase year 2007, r=3%, g=1.5%
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
24/25
Estimating pension liabilities
Nominal healthcare contribution rate to balance future NFZ budgets:
6,0
8,0
10,0
12,0
14,0
16,0
18,0
20,0
22,0
2010 2015 2020 2025 2030 2035 2040 2045 2050
contributionratein%
year
Standard scenario Cost pressure scenario
Which contribtution rates are we willing to bear in coming decades?
3. Results and indicators
8/9/2019 Fiscal Outlook for Poland using Generational Accounts
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Estimating pension liabilities
Conclusion and Discussion
4. Conclusion and Discussion