A simulation framework to project pension spending: The Czech pension system
This paper presents a simulation framework developed to assess the impact of ageing
on the financial sustainability of the Czech pension system. It accompanies the publication
OECD Reviews of Pension Systems: Czech Republic. The framework has two components:
a macroeconomic model to project long-term GDP and a cohort model to simulate the
evolution of pensions. The macroeconomic model takes into account the evolution of
the labour force and productivity. The cohort model simulates the career of a representative
sample of the working-age population and their path in retirement. It replicates and
projects the main features of the labour market, in particular, participation, wage
and unemployment. It captures non-linear features of the pension system and distributional
effects. The model estimates and simulates the main demographic variables of the pension
system, in particular, the number of old-age pensioners and disability pensioners.
It allows to simulate different policy options to close the financing gap of the pension
system.
Pension spending is projected to increase to 11.9% of GDP in 2060 from 8.2% in 2018,
leading to increasing deficits of the pension system. Among the different options
to close the financing gap, further increasing the retirement age after 2030 in line
with life expectancy gains appears to be the most efficient policy measure to boost
growth and reduce the financing needs. However, additional measures would be needed
to close the financing gap of the pension system.
Published on February 16, 2021
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