Flexible Partial Pension – a Bridge to Full-time Retirement, a Way out of Employment, or an Income Supplement?

Flexible partial retirement schemes are intended to give individuals the opportunity to reduce working hours before moving into full retirement, the expectation being that the reduced workload will contribute to postponed retirement. Yet, there is limited research about whether and how flexible partial pensions are used as a way of exiting the labor force, as an income supplement, or as a way of bridging the transition into retirement through part-time employment. In Finland, individuals can take up part of their accrued old-age pension after reaching age 61 regardless of their employment status. Using high-quality register data with monthly information on retirement and wage income, we use sequence analysis analyze previously employed persons’ wage income trajectories around the take-up of partial old-age pension. We find that only around one in five continue to work at a reduced wage income level, indicating a reduction in working hours. Around one in six left paid employment just before or after pension take-up. Most individuals do not reduce their working hours when taking up a partial pension. Our findings suggest that the Finnish partial old-age pension scheme is currently not likely to extend working lives, raising concerns about its effectiveness in meeting its policy goal.