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Pensions and Retirement in the UK

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  • Richard Blundell
  • Paul Johnson

Abstract

Labor force participation of men over age 50 fell sharply in the UK between the early 1970s and early 1990s. Despite the fact that the state retirement pension does not become available to men until age 65, half of men aged 60-64 were economically inactive in the mid 1990s. The main element of the state retirement pension is flat rate, and for most people is unaffected by any potential contributions made after age 60. Additional amounts of the earnings related component, SERPS, are earned as a result of extra contribu- tions. Overall the state retirement pension system offers no incentives for people to retire early. However, other benefits are available to people before the age of 65. Once the age of 60 is reached there is no availability for work test for receipt of means-tested benefits and there appears to be widespread use of invalidity and sickness benefits as a route into early retirement. Once these are accounted for a substantial incentive for early withdrawal from the labor market is apparent. The combination of this with the reduced demand for, and wages available to, low skilled labor can explain the reduced labor force participation that is observed. The state pension system, though, is complemented by extensive occupational pension coverage. For those in the occupational system the rules of their own scheme are likely to be an important element in their retirement decision. We show that the retirement behavior of those with and without occupational pensions is substantially different. Those without are more likely to withdraw from the labor market very early. A large share of those with occupational pensions retires from the age of 55 when relatively generous benefits are likely to become available. In many schemes there are incentives to retire before age 65

Suggested Citation

  • Richard Blundell & Paul Johnson, 1997. "Pensions and Retirement in the UK," NBER Working Papers 6154, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6154
    Note: AG PE
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    File URL: http://www.nber.org/papers/w6154.pdf
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    Cited by:

    1. Richard Blundell & Carl Emmerson, 2007. "Fiscal Effects of Reforming the UK State Pension System," NBER Chapters,in: Social Security Programs and Retirement around the World: Fiscal Implications of Reform, pages 459-502 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. Brian Bell & James Smith, 2004. "Health, disability insurance and labour force participation," Bank of England working papers 218, Bank of England.
    4. Richard Disney & Tanner, Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies.
    5. Axel Borsch-Supan, 1998. "Incentive Effects of Social Security on Labor Force Participation: Evidence in Germany and Across Europe," NBER Working Papers 6780, National Bureau of Economic Research, Inc.
    6. Miles, David K, 2000. "Funded and Unfunded Pensions: Risk, Return and Welfare," CEPR Discussion Papers 2369, C.E.P.R. Discussion Papers.
    7. M. Asghar Zaidi & Klaas de Vos, 2002. "Income Mobility of the Elderly in Great Britain and The Netherlands: A Comparative Investigation," Economics Series Working Papers 107, University of Oxford, Department of Economics.
    8. Borsch-Supan, Axel, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 25-49, October.
    9. Jeff Borland, 2005. "Transitions to Retirement: A Review," Melbourne Institute Working Paper Series wp2005n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    10. 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.
    11. Julie Zissimopoulos & Nicole Maestas & Lynn Karoly, 2007. "The Effect of Retirement Incentives on Retirement Behavior: Evidence from the Self-Employed in the United States and England," Working Papers wp155, University of Michigan, Michigan Retirement Research Center.

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