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Pension plans and retirement incentives

  • Disney, Richard
  • Whitehouse, Edward

This paper aims to examine the impact of type of pension scheme on retirement behavior. Section 1 describes a simple, theoretical model of optimal retirement. Section 2 introduces an empirical model of a simple retirement savings plan, or defined contribution pension scheme. Section 3 compares this with a defined benefit scheme. Sections4 and 5 examine the effect of these pension plans on work incentives. The following three sections extend the basic model to introduce'real world'features of pension plans. Section 9 examines the policy implications of the results and sets out anagenda for future research in this area. The results show a powerful incentive to leave work at the earliest possible age in defined benefit plans. Defined contribution plans, in contrast, encourage people to remain in work longer.

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Paper provided by The World Bank in its series Social Protection and Labor Policy and Technical Notes with number 20851.

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Date of creation: 31 Aug 1999
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Handle: RePEc:wbk:hdnspu:20851
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  1. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, March.
  2. Michael Podgursky & Paul Swaim, 1987. "Job Displacement and Earnings Loss: Evidence from the Displaced Worker Survey," ILR Review, Cornell University, ILR School, vol. 41(1), pages 17-29, October.
  3. Leora Friedberg, 1998. "The Social Security Earnings Test and Labor Supply of Older Men," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 121-150 National Bureau of Economic Research, Inc.
  4. Ruhm, Christopher J, 1990. "Bridge Jobs and Partial Retirement," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 482-501, October.
  5. James H. Stock & David A. Wise, 1988. "The Pension Inducement to Retire: An Option Value Analysis," NBER Working Papers 2660, National Bureau of Economic Research, Inc.
  6. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-84, May.
  7. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection and Labor Policy and Technical Notes 20048, The World Bank.
  8. Leora Friedberg, 1998. "The Effect of Old Age Assistance on Retirement," NBER Working Papers 6548, National Bureau of Economic Research, Inc.
  9. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1994. "Pension Plan Provisions and Retirement: Men and Women, Medicare, and Models," NBER Chapters, in: Studies in the Economics of Aging, pages 183-222 National Bureau of Economic Research, Inc.
  10. 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.
  11. Richard V. Burkhauser, 1980. "The Early Acceptance of Social Security: An Asset Maximization Approach," ILR Review, Cornell University, ILR School, vol. 33(4), pages 484-492, July.
  12. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
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  14. Amanda Gosling & Stephen Machin & Costas Meghir, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 635-666.
  15. Richard B. Freeman, 1979. "The Effect of Demographic Factors on Age-Earnings Profiles," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 289-318.
  16. Patricia M. Anderson & Alan L. Gustman & Thomas L. Steinmeier, 1997. "Trends in Male Labor Force Participation And Retirement: Some Evidence On The Role Of Pensions And Social Security In The 1970's And 1980's," NBER Working Papers 6208, National Bureau of Economic Research, Inc.
  17. Alan L. Gustman & Thomas L. Steinmeier, 1984. "Partial Retirement and the Analysis of Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 37(3), pages 403-415, April.
  18. Meghir, Costas & Whitehouse, Edward, 1997. "Labour market transitions and retirement of men in the UK," Journal of Econometrics, Elsevier, vol. 79(2), pages 327-354, August.
  19. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1, 08.
  20. Boskin, Michael J. & Hurd, Michael D., 1978. "The effect of social security on early retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 361-377, December.
  21. Whitehouse, Edward, 1999. "The tax treatment of funded pensions," Social Protection and Labor Policy and Technical Notes 20126, The World Bank.
  22. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity versus Predictive Validity," NBER Chapters, in: Topics in the Economics of Aging, pages 21-60 National Bureau of Economic Research, Inc.
  23. Ruhm, Christopher J., 1996. "Do pensions increase the labor supply of older men?," Journal of Public Economics, Elsevier, vol. 59(2), pages 157-175, February.
  24. Edward Whitehouse, 1990. "The abolition of the pensions 'earnings rule'," Fiscal Studies, Institute for Fiscal Studies, vol. 11(3), pages 55-70, August.
  25. Robert M. Hutchens, 1988. "Do Job Opportunities Decline with Age?," ILR Review, Cornell University, ILR School, vol. 42(1), pages 89-99, October.
  26. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
  27. Gary Burtless, 1986. "Social Security, Unanticipated Benefit Increases, and the Timing of Retirement," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 781-805.
  28. Gerhard Naegele, 1996. "New Trends in Gradual Retirement in Germany*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 21(4), pages 524-533, October.
  29. Joseph F. Quinn & Richard V. Burkhauser & Daniel A. Myers, 1990. "Passing the Torch: The Influence of Economic Incentives on Work and Retirement," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pt, November.
  30. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  31. Didier Blanchet & Cécile Brousse & Mahrez Okba, 1996. "Retraite, préretraite, neutralité actuarielle et couverture du risque de chômage en fin de carrière," Économie et Statistique, Programme National Persée, vol. 291(1), pages 203-218.
  32. Laurence J. Kotlikoff & David A. Wise, 1984. "The Incentive Effects of Private Pension Plans," NBER Working Papers 1510, National Bureau of Economic Research, Inc.
  33. Palme, Mårten & Svensson, Ingemar, 1997. "Social Security, Occupational Pensions, and Retirement in Sweden," SSE/EFI Working Paper Series in Economics and Finance 184, Stockholm School of Economics.
  34. Richard W. Johnson & David Neumark, 1996. "Age Discrimination, Job Separation, and Employment Status of Older Workers: Evidence from Self-Reports," NBER Working Papers 5619, National Bureau of Economic Research, Inc.
  35. Richard Disney, 1995. "Occupational pension schemes: prospects and reforms in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 16(3), pages 19-39, September.
  36. Alan L. Gustman & Thomas L. Steinmeier, 1989. "The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?," NBER Working Papers 3086, National Bureau of Economic Research, Inc.
  37. Marek Gora & Michael Rutkowski, 2000. "The Quest for Pension Reform: Poland's Security though Diversity," William Davidson Institute Working Papers Series 286, William Davidson Institute at the University of Michigan.
  38. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
  39. Sewin Chan & Ann Huff Stevens, 1999. "Job Loss and Retirement Behavior of Older Men," NBER Working Papers 6920, National Bureau of Economic Research, Inc.
  40. Richard Disney & Costas Meghir & Edward Whitehouse, 1994. "Retirement behaviour in Britain," Fiscal Studies, Institute for Fiscal Studies, vol. 15(1), pages 24-43, February.
  41. Christopher J. Ruhm, 1995. "Secular Changes in the Work and Retirement Patterns of Older Men," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 362-385.
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