The Department for Work and Pensions (DWP)’s Pensim2 model is a dynamic
microsimulation model. The principal purpose of this model is to estimate the future
distribution of pensioner incomes, thus enabling analysis of the distributional effects of
proposed changes to pension policy. This paper presents the results of an assessment of
Pensim2 by researchers at the IFS. We start by looking at the overall structure of the
model, and how it compares with other dynamic policy analysis models across the world.
We make recommendations at this stage as to how the overall modelling strategy could be
improved. We then go on to analyse the characteristics of most of the individual modules
which make up Pensim2, examining the data used and the regression and predictions used
in each step. The results from this examination are used to formulate a set of short and
medium-term recommendations for developing and improving the model. Finally, we look at
what might become possible for the model over a much longer time frame – looking towards
developing a ‘Pensim3’ model over the next decade or so
