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The Impact of Age Pension Eligibility Age on Retirement and Program Dependence: Evidence from an Australian Experiment

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  • Kadir Atalay
  • Garry F. Barrett

Abstract

Identifying the effect of the financial incentives created by social security systems on the retirement behaviour of individuals requires exogenous variation in program parameters. In this paper we study the 1993 Australian Age Pension reform which increased the eligibility age for women to access the social security benefit. We find economically significant responses to the increase in the Age Pension eligibility age. An increase in the eligibility age of 1 year induced a decline in retirement probability by approximately 10 percent. In addition, we find that the social security reform induced significant "program substitution." The rise in the Age Pension eligibility age had an unintended consequence of increasing enrolment in other social insurance programs, particularly the Disability Support Pension, which functioned as an alternative source for funding retirement.

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File URL: http://socserv.mcmaster.ca/sedap/p/sedap295.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 295.

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Length: 43 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:mcm:sedapp:295

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Keywords: Retirement; age pension; program substitution;

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  1. Duggan, Mark & Singleton, Perry & Song, Jae, 2007. "Aching to retire? The rise in the full retirement age and its impact on the social security disability rolls," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1327-1350, August.
  2. Giovanni Mastrobuoni, 2006. "Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities," CeRP Working Papers 53, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  3. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments 00141, The Field Experiments Website.
  4. Lixin Cai & Bob Gregory, 2005. "Unemployment Duration and Inflows onto the Disability Support Pension Program: Evidence from FaCS LDS Data," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(3), pages 233-252, 09.
  5. Diana Warren, 2008. "Australia's Retirement Income System:Historical Development and Effects of Recent Reforms," Melbourne Institute Working Paper Series wp2008n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Norma B. Coe & Kelly Haverstick, 2010. "Measuring the Spillover to Disability Insurance Due to the Rise in the Full Retirement Age," Working Papers, Center for Retirement Research at Boston College wp2010-20, Center for Retirement Research, revised Dec 2010.
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