Pension System Czech Republic
Introduction
Simulation of pension reform in the Czech Republic: Analysis of long-term sustainability
What will be simulated:
A system dynamics model of the Czech pension system that simulates the long-term financial sustainability under varying demographic, economic, and policy scenarios. The simulation will project future balances of the pension system, incorporating the flows of revenues (social insurance contributions) and expenditures (pension payouts)
Problem definition
The main goal is to analyze how different pension reform strategies (e.g., adjusting retirement age, altering contribution rates, changing the indexation formula of pensions) will affect the long-term stability of the Czech pension system. The simulation aims to identify specific policy levers and thresholds that ensure the pension system’s financial equilibrium over a multi-decade horizon, despite changing demographic and economic conditions.
Method
The System Dynamics method was chosen for its ability to model complex systems with multiple influencing variables, inflows, and outflows. Alternative approaches, such as Monte Carlo analysis or agent-based modeling in NetLogo, were deemed unsuitable for this case as they cannot adequately capture the dynamic interactions and feedback loops between demographic, economic, and policy variables. Vensim PLE was selected as the simulation environment due to its accessibility and support for this type of modeling.
Model
