Forecasting the impact of state pension reforms in post-Brexit England and Wales using microsimulation and deep learning

Abstract

We employ stochastic dynamic microsimulations to analyse and forecast the pension cost dependency ratio for England and Wales from 1991 to 2061, evaluating the impact of the ongoing state pension reforms and changes in international migration patterns under different Brexit scenarios. To fully account for the recently observed volatility in life expectancies, we propose mortality rate model based on deep learning techniques, which discovers complex patterns in data and extrapolated trends. Our results show that the recent reforms can effectively stave off the "pension crisis" and bring back the system on a sounder fiscal footing. At the same time, increasingly more workers can expect to spend greater share of their lifespan in retirement, despite the eligibility age rises. The population ageing due to the observed postponement of death until senectitude often occurs with the compression of morbidity, and thus will not, perforce, intrinsically strain healthcare costs. To a lesser degree, the future pension cost dependency ratio will depend on the post-Brexit relations between the UK and the EU, with "soft" alignment on the free movement lowering the relative cost of the pension system compared to the "hard" one. In the long term, however, the ratio has a rising tendency.