fiscal outlook for poland using generational accounts

8/9/2019 Fiscal Outlook for Poland using Generational Accounts

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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


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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 )


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The Freiburg Model

Main features of the GA in relation to other projections (I)

1. Scope of the fiscal projection What is modelled ?


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Main features of the GA in relation to other projections

1. Scope of the fiscal projection What is modelled ?


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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



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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



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Step 3: Match micro and macro data

Long-term fiscal projections the Freiburg Model2. Modelling approach


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Step 4: Project expenditures and revenues (I)

&

The Freiburg ModelLong-term fiscal projections the Freiburg Model

weighted with future cohort sizes



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Step 4: Project expenditures and revenues (II)

The Freiburg ModelLong-term fiscal projections the Freiburg Model2. Modelling approach


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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



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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


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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%



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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

???



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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



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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%



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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



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-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%



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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%



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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%



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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


In the coming 20 years ZUS will be confronted with an inreasing mismatchof contributions and expenditures


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base year 2007, r=0%, g=1,5%

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

Growth assumptions make a difference



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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


base year 2007, r=0%, g=AWG



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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%



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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?



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Conclusion and Discussion

4. Conclusion and Discussion

fiscal outlook for poland using generational accounts

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