A dynamic microsimulation pension model is a powerful tool that helps policymakers and researchers analyze the impact of different pension policies on individuals and society.
It uses a large dataset of individual characteristics and behaviors to simulate how people's pension outcomes might change in response to various policy scenarios.
This approach allows for a more nuanced understanding of how different groups, such as low-income workers or women, might be affected by pension reforms.
By considering individual circumstances, dynamic microsimulation models can provide more accurate and realistic projections than traditional aggregate models.
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Microsimulation Model
The ELSI microsimulation model is developed and maintained by the Finnish Centre for Pensions. It's used to forecast the long-term development of Finnish earnings-related pensions and national and guarantee pensions.
The ELSI model is a key tool for supplementing the Finnish Centre for Pensions' semi-aggregated long-term planning (LTP) model. The LTP model groups people by sex, age, and population state and simulates these groups' mean characteristics.
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The ELSI model employs individual-level microdata to simulate the life course of each individual separately. This allows for a more detailed understanding of pension distributions and their effects on different population subgroups.
The population modeled by ELSI comprises all adults who are covered by the Finnish social security system and those who have previously accrued earnings-related pension under the Finnish pension system. The input data used in the model is based on administrative registers and covers the entire population of interest.
The ELSI model consists of several modules that are run in succession. These modules include a population module, an earnings module, an earnings-related pension module, a national pension module, and an income tax module.
Here's an overview of the ELSI model's modules:
- Population module: simulates new people entering the population, deaths, and transitions between population states.
- Earnings module: simulates annual wages and pension-accruing social security benefits.
- Earnings-related pension module: calculates pension accrual and earnings-related pension amounts.
- National pension module: simulates national and guarantee pensions.
- Income tax module: handles income taxes and net earnings.
The ELSI model produces individual-level output data that makes it possible to study simulated pension distributions in detail and analyze results in specific population subgroups. This data can be studied longitudinally, allowing for a deeper understanding of the effects of policy proposals on pension benefits.
Publications
The MOSART model has been extensively documented in various publications.
Andreassen, L., Fredriksen, D., Gjefsen, H.M., Halvorsen, E. and Stølen, N.M. (2020) published a paper in the International Journal of Microsimulation that describes the model in detail.
A more detailed documentation of the model is found in Fredriksen (1998), which provides projections of population, education, labour supply and public pension benefits.
Fredriksen, D. and N.M. Stølen (2017) also published a paper in the International Journal of Microsimulation, where they examine lifetime pension benefits relative to lifetime contributions.
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