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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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  12. 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.
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  14. 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.
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  18. Friedberg, Leora, 1999. "The effect of old age assistance on retirement," Journal of Public Economics, Elsevier, vol. 71(2), pages 213-232, February.
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  25. 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.
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  27. 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.
  28. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
  29. 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.
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  34. Robert M. Hutchens, 1988. "Do Job Opportunities Decline with Age?," ILR Review, Cornell University, ILR School, vol. 42(1), pages 89-99, October.
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  38. Gerhard Naegele, 1996. "New Trends in Gradual Retirement in Germany*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 21(4), pages 524-533, October.
  39. Whitehouse, Edward, 1999. "The tax treatment of funded pensions," Social Protection and Labor Policy and Technical Notes 20126, The World Bank.
  40. 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.
  41. 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.
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