Nataša Kump - DYPENSI – Dynamic Pension Microsimulation Model for Slovenia: Overview, Model Architecture and Recent Policy Implications of Model Use

  • Presenting author: Nataša Kump (Institute for Economic Research)

  • Authors: Nataša Kump, Martin Spielauer, Boris Majcen, Aleša Lotrič Dolinar

  • Session: C02A - Dynamic / Long term [3] - Wednesday 11:00-12:30 - Ceremonial Hall

  • Slides: PDF

Economic sustainability and adequacy of social security systems are under severe pressure. Numerous studies prepared for Slovenia clearly show that new policy measures are necessary to compensate for the adverse effects of demographic changes. Without further reforms, the sustainability of the public finance and pension system would steadily deteriorate. AWG projections show that without reforms, Slovenia would reach one of the highest public finance deficits among the EU member countries. The Slovenian pension microsimulation model DYPENSI addresses these issues, allowing us to assess both the future pension expenditures and the adequacy of pensions under various reform proposals. The aim of this paper is twofold. First, we will present the DYPENSI model, paying special attention to its technical architecture and design. As a continuous-time model allowing for realistic sub-annual spell durations of processes like unemployment, maternity and parental leave, and related policies and benefits, it follows a non-classical approach in the context of most other European models. We found this approach very powerful with its high modularity and elaborate (optional) alignment routines. In particular, the design enables us both to reproduce and to challenge external scenarios as used e.g. in the Ageing Report. The model results were recently used in the negotiation with European Commission about future labour market assumptions, which strongly impact the estimated future pension expenditure. Besides, the model has been extensively used in preparing the forthcoming pension reform. DYPENSI is implemented in Modgen, a freely available programming language developed and maintained at Statistics Canada. This choice has proven to be very efficient in handling a large interacting population based on administrative data, maintaining family links, and implementing the various Slovenian policies, which frequently include population-wide relative measures like average wages in its benefit formulas. This paper also aims to stimulate discussion on modelling choices, their trade-offs, and their consequences. We will particularly focus on modelling choices in migration flows, which proved to have an unexpectedly strong impact on the future picture of the Slovenian pension system.