How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German case
AbstractPopulation Aging poses an evident threat to the financial sustainability of pension systems based on a “pay-as-you-go” (PAYG) scheme. To cope with this threat, pension systems have undergone numerous reforms in many countries in order to keep people longer at work. One crucial element of these reforms typically is an increase in the statutory retirement age at which workers are legally allowed to retire. Two questions still remain unanswered: Will people really work longer? Who is more likely to retire before the new legal retirement age? In this paper, we focus on subjective retirement expectations, analysing if and to what extent they are affected by such a policy change. We consider the legislative reform introduced in Germany in 2007, which gradually will increase the statutory retirement age (SRA) from 65 to 67 years. Using the SAVE survey, a representative panel of German households, we estimate the increase of the individuals’ expected retirement age (ERA) as an effect of the reform. Our results show that less productive workers living in relatively wealthier households are more likely to plan an early retirement. The introduction of the reform seems to motivate better educated workers to remain longer in the labour force although it does not seem to completely succeed in keeping women longer in the labour force: especially among the younger cohorts, whose SRA will be 67 years, women are still more likely than men to plan an early retirement. In terms of the magnitude of the effect, we find that the reform shifted the expectations of the younger cohorts by almost two years – if these expectations will be realized, this reform would have been quite successful.
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Bibliographic InfoPaper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 10207.
Date of creation: 02 Nov 2010
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Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany
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Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D1 - Microeconomics - - Household Behavior
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-01-23 (Economics of Ageing)
- NEP-ALL-2011-01-23 (All new papers)
- NEP-EEC-2011-01-23 (European Economics)
- NEP-EUR-2011-01-23 (Microeconomic European Issues)
- NEP-LAB-2011-01-23 (Labour Economics)
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