The effect of ageing on the inter and intragenerational distribution in Belgium

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The effect of ageing on the inter- and
intra-generational distribution in Belgium

• A projection towards 2021 using a microsimulation
  model
• Stijn Lefebure, IMA 2007 Vienna

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Outline

• Joint work with Karel Van den Bosch Gerline
  Verbist
• Objectives
• Technical aspects
• Results
• Future work

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Objectives

• Projecting future Belgian income distribution
• Taking into account demographics
• And the evolution of wages and benefits
• Conformity with official macromodels

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Technical aspects

• Static ageing and uprating
• SILC 2004 dataset

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four additive scenarios

• Changing demographics
• According to LIPRO projections

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LIPRO
For males and females in age classes of five
years, we have the proportion of the following
household positions

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four additive scenarios

• Changing demographics
• According to LIPRO projections
• Uprating of wages and benefits
• Modified employment rates
• Introduction of a base pension

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Uprating

• Wages grow by 2.25 a year (0.5 wage drift,
  1.75 wage rise)
• Wage dependant benefits grow by 0.5 a year
• Except the income of recent retirees, which grows
  at 2.25
• Wage independent benefits grow by 1 a year

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Pension uprating
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Minimum pension

• A currently existing means tested Income
  guarantee for elderly is assigned to all elderly
  with incomes lower than this benefit.
• Full welfare linkage (2.25) of this benefit

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General results

• Impact of uprating is much larger than impact of
  demographics
• Uprating causes mean income to increase by -10
  every five years
• Little variation within scenarios across time
• Except Minimum pension

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Penns Parade
2011
2021
2016
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Results of four scenarios

• Static ageing headcount poverty remains stable
  over time
• Uprating Headcount poverty increases over time
  among groups with low share of labor income,
  stability in groups with high shares of labor
  income
• Employment reinforces previous trend
• Minimum pension Decline in elderly poverty over
  time as compared to the uprating scenario, but
  less spectacular as in previous studies (even
  with full welfare link of the minimum pension)

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Gender effects

• Currently, Belgium is one of the few countries
  who combines high elderly poverty rates with
  equal elderly poverty rates for men and women
• Our simulation projects gender divergence after
  uprating
• Elderly poverty rises faster among woman than
  among man
• Exception (non wage related) minimum pension

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Poverty, uprating employment
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Poverty, minimum pension
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Remark

• Evolution 50-74 partially artifact
• 50-64 benefit to the extent of the rise in
  employment
• 65-74 are all considered to have full working
  careers
• Overestimation of income
• Work in progress!

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Conclusions

• Allowing pensions to grow slower than wages has
  important distributional impacts, even on a time
  span of 15 years
• The oldest retirees are facing considerable
  welfare erosion
• Poverty (and inequality) rises over time

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Future steps

• Development of dynamic model
• Longitudinal model based on MIMOSIS tax benefit
  model (Decoster, Van Camp, Perelman, Verbist,
  Orsini, De Swerdt, Rombouts)
• Simulation of full working careers, different
  paths into early exit,
• Extension towards 2050, for the whole of Belgium

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Future steps

• Hybrid approach population is split in a part
  where life transitions are assumed to be
  completed (education, marriage, number of
  children, career success) and a part where this
  is still taking place
• Life transitions are simulated statically
  (reintroducing current young cohorts)
• Careers and demographics are simulated
  dynamically
• Demarcation - birth year 1965

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Thanks for your attention!