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Towards an actuarially fair pension system in Norway

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Author Info

  • Ugo Colombino

    ()

  • Erik Hernæs
  • Marilena Locatelli
  • Steinar Strøm

Abstract

In order to estimate labour supply responses among older people we have employed a very simple model of retirement decisions that can be estimated on a single cross-section sample, and still be given a structural interpretation in terms of inter-temporal decisions. The model is estimated on Norwegian register data from 1996, which covers all Norwegians aged 55-68 in 1996. The empirical model is employed to assess the impact on retirement of moving the Norwegian pension system towards actuarial fairness. Future annual pension benefits are increased if retirement is postponed say, for one year. In one of the simulations future annual benefits are increased by NOK 8,000 (as of April 2009 1 Euro~ NOK 8.7), which is around 5 per cent of the average pension benefit in 1996 and corresponds approximately to the adjustment in the new pension system which comes into effect 1. January 2011. The number of men and women choosing retirement is reduced by around 5 per cent, given that there is no consumption smoothing. When perfect consumption smoothing is assumed the reduction is much larger; 18 per cent in the case of men and 14 per cent in the case of women. These reductions are really sizeable and indicate that pension reforms, combined with removing constraints in the credit market, may be of great importance in giving the individuals incentive to prolong their working life.

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Bibliographic Info

Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp14_09.

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Length: 33 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:wpc:wplist:wp14_09

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Keywords: Retirement; inter-temporal interpretation; estimates and policy simulations; Norway;

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