Flexible Pension Systems - Postponed Retirement and Distributional Fairness

Abstract

This paper studies how both pension systems and well-being at work can be improved to postpone retirement in European households. The analysis draws on the first 8 waves (1994-2001) of the European Community Household Panel (ECHP). Option values for retirement are constructed from a pool of four countries: Finland, Belgium, Germany and Spain, all relying on public-sector mandated pensions. The pooled estimation strategy diminishes the caveats of using an existing institutional setting to examine the incentives of introducing a new pension system. Pension reforms have to implement higher pension rights accruals than what has so far been introduced in pension reforms during the 2000s. Actuarial adjustment for reduction of pensions by 5%-points for each year of early retirement and even greater additions to pensions for postponed retirement would increase retirement age by around 4.4 years on average and even up to 6 years in Belgium and Germany. Pecuniary incentives are not dwarfed by joint retirement. The alternatives of improving well-being at work or improving health have minor effects.