Exploring the potential of microsimulation
for the study of poverty, health, and social
security in the developing world. The
MicroHGC model
IMA 2011
Martin Spielauer (IIASA)
Landis MacKellar (IIASA)
Organization
- Context
- The MicroHGC Model
- General outline
- Implementation
- Illustrative results
- Life course income
- Distribution of returns
- Pension income & poverty
- Conclusions & Discussion
Context
- Technical Assistance project of the Asian Development
Bank: introduction of the New Pension System (NPS) in
India
- Examples from:
Landis MacKellar, Martin Spielauer (forthcoming 2011)
NPS and the Individual Saver: a Microsimulation
Analysis. In: Implementing Pension Reforms for Financial
Inclusion: Policy Issues and Options for India; Asian
Development Bank
- MicroHGC: generic version, developed at IIASA
- Tool for research & capacity building
- MS for study of poverty, health & social security
Context
- Developing world setting
- Less detailed data
- Fundamental policy choices
- High inequality (no mean/representative agent)
- MS complementing stylized macro accounting models
- Adding flexibility & distributions; reproducing macro
- Transparent, simple to understand and operate
- Evolvement of project:
- actuarial macro model
- Idea to add calculations for some “typical cases”
- Cases, cohorts, population..
- … reproduction of macro model with added information
Context – Indian NPS
- The NPS is a version of the public sector pension plan for
“unorganized sector” = 89% of population
- Voluntary, minimum contribution of 500Rs (10$) / month
- Enhanced investment choices (investment strategy & 6
funds)
- Non-withdrawable
- EET tax regime: contribution & accrued earnings exempt,
Taxable at withdrawal (ongoing discussion)
- Low fees compared to existing private plans
- 2$PPP/day poverty line; 1.25US$ nominal = 60Rs
- Median male work income ~3000 Rs/month (60US$)
Model – General Outline
Behaviour
Macro
Micro
Fertility
UN projection, urban
/ rural
# births + list of typical families
Open population, case based
Mortality
Urban / rural, 1%
decrease per year
identical
Migration
1% rural -> urban
identical
LMP
scenarios
+ duration in state
Wages
Average, fixed
growth scenarios
+ distribution: log-normal Gini 0.36
+ mobility
Sickness, disability
Scenarios
Pension saving
Fixed %
+ boundary condition: 2$PPP,
minimum contribution 500Rs,
normal & max saving rate
NPS
Fixed interest,
Stylized fees,
enrolment scenarios,
annuitized at 60
+ Detailed fee structure
+ Rule-based enrolment
+ inheritance
Model – Implementation
- Implemented in the generic microsimulation language
Modgen developed and maintained at Statistics Canada
Illustration: Life course income, 1992 cohort
Life-Course Income and Pension by Type for the 1992 Birth Cohort;
Male, 6th Earning Decile
30000
28000
26000
24000
22000
20000
18000
16000
Rs.
Household pension income
Existence Minimum
14000
Household income net of NPS contributions
12000
Individual pension income
10000
8000
6000
4000
2000
0
202224262830323436384042444648505254565860626466687072747678808284868890
Age
Illustration: Life course income, 2002 cohort
Life-Course Income and Pension by Type for the 2002 Birth Cohort;
Male, 6th Earning Decile
30000
28000
26000
24000
22000
20000
18000
16000
Rs.
Household pension income
Existence Minimum
14000
Household income net of NPS contributions
12000
Individual pension income
10000
8000
6000
4000
2000
0
202224262830323436384042444648505254565860626466687072747678808284868890
Age
Illustration: Distribution of IRR, 1992 cohort
IRR of Pension Savings by Initial Income Decile, 1992 Birth Cohort:
100%
4.0%
90%
3.5%
80%
50%
2.0%
40%
1.5%
IRR
2.5%
60%
Never enough income to join plan
All savings consumed up by fees
Negative IRR
30%
1.0%
20%
Positive IRR
Average positive IRR
0.5%
10%
Female
.
Male
.
All
10th Decile
7th Decile
4th Decile
1st Decile
10th Decile
7th Decile
4th Decile
1st Decile
10th Decile
7th Decile
0.0%
4th Decile
0%
1st Decile
Percentage of population
3.0%
70%
Illustration: Pensions by earning deciles
Average individual Pensions by Initial Earning Decile and Year of Birth
20000
18000
16000
14000
1st Decile
2nd Decile
3rd Decile
4th Decile
10000
5th Decile
6th Decile
8000
7th Decile
8th Decile
6000
9th Decile
10th Decile
4000
All
2000
0
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
2024
2028
2032
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Real (2010) Rs.
12000
Female
Male
[1992,1993)
[1995,1996)
[1998,1999)
[2001,2002)
[2004,2005)
[2007,2008)
[2010,2011)
[2013,2014)
[2016,2017)
[2019,2020)
[2022,2023)
[2025,2026)
[2028,2029)
[2031,2032)
[1992,1993)
[1995,1996)
[1998,1999)
[2001,2002)
[2004,2005)
[2007,2008)
[2010,2011)
[2013,2014)
[2016,2017)
[2019,2020)
[2022,2023)
[2025,2026)
[2028,2029)
[2031,2032)
Illustration: Pensions and poverty
Population age 65 with Household Pension Income above Poverty Line by
Initial Income Decile and Year of Birth
1
0.9
0.8
0.7
1st Decile
0.6
2nd Decile
0.5
3rd Decile
4th Decile
0.4
5th Decile
0.3
6th Decile
0.2
7th Decile
8th Decile
0.1
9th Decile
0
10th Decile
.
Male
All
[2032,2033)
[2031,2032)
[2030,2031)
[2029,2030)
[2028,2029)
[2027,2028)
[2026,2027)
[2025,2026)
[2024,2025)
[2023,2024)
[2022,2023)
[2021,2022)
[2020,2021)
[2019,2020)
[2018,2019)
[2017,2018)
[2016,2017)
[2015,2016)
[2014,2015)
[2013,2014)
[2012,2013)
[2011,2012)
[2010,2011)
[2009,2010)
[2008,2009)
[2007,2008)
[2006,2007)
[2005,2006)
[2004,2005)
[2003,2004)
[2002,2003)
[2001,2002)
[2000,2001)
[1999,2000)
[1998,1999)
[1997,1998)
[1996,1997)
[1995,1996)
[1994,1995)
[1993,1994)
[1992,1993)
Illustration: Pensions and health expenditures
Population age 65 with Household Pension Income above Poverty Line
by Initial Income Decile and Year of Birth: Base vs. Health Expenditure
Scenario
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
[1992,1993)
[1993,1994)
[1994,1995)
[1995,1996)
[1996,1997)
[1997,1998)
[1998,1999)
[1999,2000)
[2000,2001)
[2001,2002)
[2002,2003)
[2003,2004)
[2004,2005)
[2005,2006)
[2006,2007)
[2007,2008)
[2008,2009)
[2009,2010)
[2010,2011)
[2011,2012)
[2012,2013)
[2013,2014)
[2014,2015)
[2015,2016)
[2016,2017)
[2017,2018)
[2018,2019)
[2019,2020)
[2020,2021)
[2021,2022)
[2022,2023)
[2023,2024)
[2024,2025)
[2025,2026)
[2026,2027)
[2027,2028)
[2028,2029)
[2029,2030)
[2030,2031)
[2031,2032)
[2032,2033)
Illustration: Pensions and fees
Population age 65 with Household Pension Income above Poverty Line by Initial Income Decile and
Year of Birth: Base vs. No Fees Scenario
100%
90%
80%
70%
60%
50%
1. Decile, No Fees Scenario
40%
30%
1. Decile, Base cenario
20%
10%
0%
Conclusions
- Application side
- Illustration of limits of private saving for old age income
security
- Enhancements
- Education
- Generic tool, capacity building
- Questions concerning microsimulation:
- Do such simple stylized models make sense (or leave
this type of modeling to macro community?)
- Are developing countries a good application area of
microsimulation
- Best strategy for improving MS models for this type of
application?