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Fiscal effects of reforming the UK state pension system

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  • Richard Blundell

    () (Institute for Fiscal Studies and IFS and UCL)

  • Carl Emmerson

    () (Institute for Fiscal Studies and Institute for Fiscal Studies)

Abstract

The fiscal and distributive impacts of three reforms to the social security pension system in the UK are evaluated. All three reforms are designed to increase the retirement age by changing the incentive structure underlying the pension system. The first increases the state pension age by three years. The second introduces an actuarial adjustment to retirement both before and after age sixty five allowing deferral to age 70. The final reform adapts the second reform to include a cap and a floor so as to mirror more closely the existing state pension scheme in the UK. Using a transition model of retirement, the simulations show that increasing the state pension age leads to a lower level of expenditure on the state pension, which is only partially offset through increased state spending on both means-tested income support and disability benefit (invalidity benefit). Employee national insurance receipts are also directly increased through the increase in the state pension age. The increase in retirement ages would also lead to an increase in government revenues arising from increased income tax and employee and employer national insurance contributions. As a result there would be lower levels of government borrowing (or larger government surpluses) than under the base system.

Suggested Citation

  • Richard Blundell & Carl Emmerson, 2003. "Fiscal effects of reforming the UK state pension system," IFS Working Papers W03/13, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:03/13
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    References listed on IDEAS

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    1. Richard Blundell & Paul Johnson, 1997. "Pensions and Retirement in the UK," NBER Working Papers 6154, National Bureau of Economic Research, Inc.
    2. Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," Economic Journal, Royal Economic Society, vol. 112(478), pages 136-152, March.
    3. Dilnot, Andrew & Disney, Richard & Johnson, Paul & Whitehouse, Edward, 1994. "Pensions policy in the UK: An economic analysis," MPRA Paper 10478, University Library of Munich, Germany.
    4. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, vol. 112(478), pages 153-170, March.
    5. James Banks & Sarah Smith, 2006. "Retirement in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 40-56, Spring.
    6. Richard Disney & Costas Meghir & Edward Whitehouse, 1994. "Retirement behaviour in Britain," Fiscal Studies, Institute for Fiscal Studies, vol. 15(1), pages 24-43, February.
    7. Clark, Tom & Emmerson, Carl, 2003. "Privatising provision and attacking poverty? The direction of UK Pension Policy under new Labour," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(01), pages 67-89, March.
    8. Richard Blundell & Costas Meghir & Sarah Smith, 2004. "Pension Incentives and the Pattern of Retirement in the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 643-690 National Bureau of Economic Research, Inc.
    9. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
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    Cited by:

    1. Cribb, Jonathan & Emmerson, Carl & Tetlow, Gemma, 2016. "Signals matter? Large retirement responses to limited financial incentives," Labour Economics, Elsevier, vol. 42(C), pages 203-212.
    2. Aaron G Grech, "undated". "The possible impact of pension age changes on Malta’s potential output," CBM Policy Papers PP/01/2016, Central Bank of Malta.
    3. repec:eee:hapoch:v1_457 is not listed on IDEAS
    4. Jonathan Cribb & Carl Emmerson & Gemma Tetlow, 2013. "Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK," IFS Working Papers W13/03, Institute for Fiscal Studies.

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