Long-term projections of pension adequacy in a selection of countries : report produced in the context of the 2024 pension adequacy report

Every three years, the European Commission and the Social Protection Committee publish a Pension Adequacy Report, which provides an overview of the current and future adequacy of old-age incomes in EU Member States. A crucial indicator of adequacy is the at-risk-of-poverty rate of older people. Results for this indicator are however only given for past years. Future adequacy is assessed mainly on the basis of the Theoretical Replacement Rates (TRRs), which show future theoretical replacement rates for a range of model persons (e.g. the base case is a person who has worked 40 years full-time at the average wage). The purpose of this report is to show for a selection of countries (Belgium, Slovenia, Czechia, and Norway) that dynamic microsimulation models can produce projections of the future at-risk-of-poverty rates of older people and pensioners. These simulations are made in such a way that they are consistent with projections of both Eurostat (for the demography) and the Ageing Working Group (AWG), which gets its mandate from the Economic Policy Committee. In this way, they allow to assess jointly the financial and social sustainability of pensions in these countries, using the AWG reference scenario and several sensitivity tests and alternative policy scenarios. Similar simulations of at-risk-of-poverty rates were produced in the contexts of the Pension Adequacy Reports of 2015, 2018 and 2021, though the sets of countries varied: Belgium, Hungary and Sweden in 2015, Belgium, Italy and Sweden in 2018 and Belgium, Hungary and Italy in 2021. See Dekkers et al. (2015), Dekkers et al. (2018) and European Union (2021). The simulations presented in this report are produced through dynamic microsimulation models. The Belgian results are produced by the model MIDAS, developed and used by the Belgian Federal Planning Bureau. The results for Norway come from the model MOSART; which is developed and used by Statistics Norway. The results for Slovenia come from the model DYPENSI from the Institute for Economic Research, Slovenia. Finally, the results for Czechia are produced by the model NEMO, from the Ministry of Labour and Social Affairs of Czechia. This note is structured as follows. The next section describes briefly the AWG projections and hypotheses for the countries involved in this microsimulation project. These projections are used as input for the dynamic microsimulation models and also form the background by which the adequacy results can be evaluated. It also presents the reference scenario and the alter-native scenarios which serve as sensitivity tests. Section three, after a short introduction to dynamic microsimulation models, discusses the simulation results by country. Section four contains a brief conclusion.