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P R O S T – Pension Reform Options

Simulation Toolkit

Tatyana Bogomolova,
World Bank, HDNSP

What is PROST?

• PROST – computer-based toolkit to simulate

pension systems over time
• Created to support World Bank pension work
• Developed in EXCEL, programmed in Visual
• User-friendly, input-output in Excel
• Regular updates with new features

Designed to:

• Estimate future trends of the pension system

over a long time frame (coverage,
contributions, benefits, financial flows)
• Test robustness of the system to shocks (e.g.
demographic, economic)
• Evaluate and compare reform options to
promote informed policymaking

Key Features of PROST

• Formulas are separated from data and assumptions,

no hidden/imposed assumptions
• Models single year cohorts, tracks them down over
time; income dimension
• Ensures consistency of assumptions about changes in
the number of contributors, pensioners and
contribution density
• Allows to model “dormant” contributors (important
in countries with low contribution density)

Key Features of PROST (cont.)

• Outputs intermediate results

• Allows to look at pension system as a whole as well
as at individuals
• Addresses all key policy dimensions
• Capacity to model national, closed-group, multiple
(fragmented) schemes
• Generic, flexible, easily adapted to various country
• Modeling reforms is relatively fast and easy
Input Data and Assumptions

• Demography
– Population
– Fertility
– Mortality
– Migration
• Economy
– Macroeconomy
– Labor market
• Pension system
– Pension system data (initial status)
– Pension policy
– Behavior of pension system members

General Calculation Scheme


Contributors Pensioners

PS revenues Pension PS expenditures

Annual current balance
Implicit Pension Debt
PROST Output

• Demographic projections
– Population
– Life expectancy
– Population dependency ratios
• Pension system demographics
– Number of contributors
– Number of pensioners (by pensioner category)
– System dependency rate
– Coverage rate
• Pension system finances (PAYG DB, multipillar)
– Wages, benefits
– Pension system revenues, expenditures, current balance, assets/debt
– Implicit pension debt
• Output for individuals (contributions, benefits, NPV, IRR)
Analysis of PAYG DB Systems
with PROST

• Financial sustainability of PAYG systems (financial

flows, IPD, financing gap)

• Adequacy of expected benefits (at retirement, post-

retirement, by pensioner category)

• Distributional effects and equity issues

• Evaluation of reform options

Assessment of Pension Reform Options
with PROST

• Types of pension reform

 PAYG “parametric” reforms (changing contribution rates,
retirement age, benefit formula, indexation, etc.)
 Systemic reforms (fully funded DC, notional DC schemes,
any combination of PAYG DB, FF DC and NDC)
• Different transition paths
 Switching pattern
 Accrued rights
• Can now model on-going DC schemes

PROST Modeling Experience

• Used in 90+ WB client countries

• ECB used PROST to model a number of countries
• WB study on the impact of the financial crisis on
different types of pension systems (2009-2010)
• WB study on the implicit pension debt (2004-2005)
• Testing of PROST: comparing projections with the
ILO model, some actuarial models (Jordan, India,