We believe that better information and understanding will lead to a better policy framework and a better provision of retirement income for all. The PPI aims to be an authoritative voice on policy on pensions and the provision of retirement income in the UK. This includes the use of modelling and projection tools. The rigour of the work undertaken and the independent perspective of the PPI confers an authority upon these figures. This allows policy makers to better weigh up the costs and benefits of policy options.Director, Pensions Policy Institute
20 May 2021
Mathematical modeling informs the development of national pensions policy
When the Pensions Policy Institute (PPI) published its briefing note on the impact of Covid on the formula for state pension increases it drew on risk forecasting methods established at King’s:
"The future development of these risk factors is highly uncertain and impossible to predict correctly. In this study, we have employed the multivariate stochastic simulation model of Sergio Alvares Maffra, John Armstrong, and Teemu Pennanen (of Kings College, London) to describe these uncertainties. The model captures the dynamics and the dependencies across different risk factors and it is easy to calibrate to both historical data as well as forecasts or user views concerning the future."
The PPI is an independent research charity that was established in 2001. It produces a large number of research reports on a variety of pension related topics which it uses to inform policy and policy debates by providing evidence-based research about the pensions landscape. It has a long term partnership with the Department of Mathematics at King’s and draws on King’s research in many of its reports.
Modelling is critical to the work of the PPI. Its Director, Chris Curry, explains:
The earliest use of the stochastic model developed by King’s was used to underpin a 2013 report from the PPI on the level of pension contributions needed to build up an adequate retirement income. The government then used further development of the model to look at whether defined collective contribution schemes provided better results.
Other recent examples include a 2017 report that explores the role that behavioural techniques play alongside other policy levers to help people achieve better long-term saving outcomes and a 2019 report showing that women have around 28% lower pensions savings and income than men.
The modelling developed from King’s research forms a basis for these reports. Known as the Economic Scenario Generator (ESG), it has been key component of PPI reports and modelling since 2013. It is used in the PPI’s key models such as their Individual Model, which models the retirement income of individuals, and the Aggregate Model, which projects government expenditure on pensions.
According to testimonial from a senior policy manager of Age UK, the PPI reports and its wider work have been important in developing greater understanding of pensions issues among policymakers and other stakeholders in the UK in areas such as policy on automatic enrolment in pensions.