Preparing for an Aging World The Case for Cross-National Research (2001) / Chapter Skim
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3. Work, Retirement, and Pensions
3. Work, Retirement, and Pensions
Pages 66-101
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From page 66... ...
With regard to work patterns, there is evidence that retirement increasingly occurs in different forms (Lazear, 1986; Organization for Economic Co-operation and Development, 1995a; National Research Council, 1996~. In fact, many countries that have experienced a decrease in labor market attachment among older workers have done so without any change in the normal retirement age.
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From page 67... ...
Moreover, the collection of these data must begin much earlier than at normal retirement age, possibly as early as age 45. Health status also plays a role in retirement decisions (Bound et al., 1999)
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From page 68... ...
PATTERNS OF WORK AND RETIREMENT AROUND THE WORLD This section reviews labor force participation rates for men and women across a wide array of countries. These contrasts are of interest in themselves, but they take on special relevance in any examination of the determinants of retirement behavior.
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From page 69... ...
For example, Table 3-1 reveals that male labor force participation rates fall well before normal ages of retirement, indeed often well before eligibility for public pensions. To study these aspects of retirement and retirement income requires an understanding of the full range of potential sources of income for older individuals, including disability schemes and private pensions in addition to public pension or social security arrangements.
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From page 70... ...
In lapan, on the other hand, nearly two-thirds are working at age 65 and three-quarters at age 60. Figure 3-2, for Europe and North America and for Australasia and Latin America, respectively, shows the labor force participation rates of men aged 55 to 59 since 1970.
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From page 71... ...
_ Q . _ .o 60ILL 70 WORK, RETIREMENT, AND PENSIONS 1nn 50 40- 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 Years 100 95 90 o ._ Q ._ .O 85 70- 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 Years 71 -- - United States ~ Denmark —-—United Kingdom Sweden Germany -- -- Belgium -- - France Canada -- - Australia New Zealand -- -- Indonesia Pakistan -- -- South Korea -- - Argentina Chile -- - Mexico FIGURE 3-2 Labor force participation rates for men aged 55-59 in two regions: Circa 1970 to circa 1998.
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From page 72... ...
. 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1970 19731976 19791982 19851988199119941997 Years -- -- - United States -- -- -- Denmark —-—United Kingdom -- -- Sweden Germany -- -- -- - Belgium -- - France Canada -- -- - Australia -- -- -- New Zealand -- - Japan -- -- Indonesia Pakistan -- -- -- - South Korea -- - Argentina - Chile -- - Mexico FIGURE 3-3 Labor force participation rates for men aged 60-64 in two regions: Circa 1970 to circa 1998.
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From page 73... ...
SOURCE: International Labour Office, various years.
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From page 74... ...
In general, the participation rates among men over age 65 show the most interesting variation in the Australasian and Latin American countries. Outside of New Zealand and Australia, men in this age group in these countries have relatively high participation rates.
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From page 75... ...
-- - Japan _ _ -- ~ Indonesia ,' Pakistan ~ ~ South Korea -- - Argentina Ch lie -- -- Mexico FIGURE 3-5 Labor force participation rates for women aged 55-59 in two regions: Circa 1970 to circa 1998. NOTE: Top panel Europe and North America, bottom panel Australasia and Latin America.
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From page 76... ...
_ id 30Q . _ c' ~ - 20United States -- -- -- Denmark - United Kingdom -- -- Sweden Germany -- -- -- - Belg iu m -- - France - Canada , ~ , ~ O- _ 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 Years Australia -- -- -- New Zealand -- - Japan -- -- Indonesia Pakistan -- -- -- -South Korea -- - Argentina Ch lie - Mexico FIGURE 3-6 Labor force participation rates for women aged 60-64 in two regions: Circa 1970 to circa 1998.
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From page 77... ...
To achieve such understanding requires evaluating the incentive effects of the provisions of retirement programs, which in turn depend both on the provisions and on individual work histories, marital status, and other individual and family circumstances. Thus it is important to be able to match detailed plan provisions with individual data.
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From page 78... ...
Shown are changes in normal retirement ages, in indexation procedures, and in pension calculations that have been introduced in recent years in each country. A majority of countries have seen some planned increase in retirement age or in the minimum years of contribution required to earn a full pension, at least for women.
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From page 80... ...
48 34 (40) 24 Average 72 45 72 45 Twice 75 40 150 80 Italy Quarter 103 103 32 24 Average 90 78 82 72 Three times 85 70 192 193 Netherlands Half 73 63 41 32 Average 43 32 41 32 Twice 25 16 41 32 United Kingdom Half 72 63 25 19 Average 50 44 34 26 Twice 35 33 48 39 United Statesa Half 65 47 32 23 Average 55 38 55 38 Twice 32 21 64 42 aIn each case other than Germany and the United States, the replacement rate is calculated on the basis of the earnings distribution among workers approaching retirement age.
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From page 81... ...
Replacement rates are not really relevant in this means-tested system. NOTES: The replacement rate is calculated on the basis of the earnings distribution among workers approaching retirement age.
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From page 82... ...
Indeed, Canada has almost a flat-rate system. Naturally the flat-rate Dutch and Australian systems offer the same cash level of benefits whatever the previous earnings history and thus, relative to earnings, provide higher retirement incomes to low than to high earners.
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From page 83... ...
One interesting development has been that in recent years, both the Germans and Japanese have moved toward indexing their earnings-related pensions to a measure of after-tax earnings growth rather than of gross wages. Retirement Incentives and Public Pensions Two central features of public pension plans have an important effect on labor force participation incentives.
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From page 84... ...
Gruber and Wise (1999) sum the implied tax rates on continued work beginning with the early retirement age when a person is first eligible for public pension benefits and continuing through age 69.
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From page 85... ...
bER = early retirement. CTax force is the summation of the implied tax rates on continued work beginning with the early retirement age when a person is first eligible for public pension benefits and running through age 69.
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From page 86... ...
In many European countries, unemployment insurance and disability benefit programs essentially provide early retirement benefits before the official public pension early retirement age. In the mid1990s in Belgium, for example, 22 percent of men were receiving unemployment or disability benefits at age 59.
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From page 87... ...
In general, occupational pensions are less prevalent among pensioners than among active workers. In part this is because not all pensioners are exworkers.
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From page 88... ...
On the other hand, it is among women that coverage continues to grow as work patterns change. TABLE 3-7 Proportion of Recently Retired Persons Receiving Occupational Pensions, by Sex And Marital Status, circa 1995 MaritalStatus Male Female Total Canada Single (never married)
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From page 89... ...
Table 3-8 presents figures for four countries showing the proportions of pensioners' incomes that derive from private pensions. What is perhaps most striking is that in none of these countries do occupational pensions provide half of total income for pensioners.
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From page 90... ...
plans have virtually none of the incentive effects of defined-benefit plans, and their rapid rise is therefore likely to change the incentive for early retirement faced by the typical worker.3 The use of public-sector disability benefit schemes to finance early retirement has already been mentioned. Occupational pensions can also be used as a vehicle for early retirement.
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From page 91... ...
KEY DATA REQUIREMENTS To understand trends in work and retirement and to assess the impact of ongoing pension reforms and changes in retirement incentives, one must gather information on work histories and longitudinal data on earnings, marital status, health status, and disability. While long earnings histories are not typically needed under defined-benefit regimes (which are often based on the last few years of wages)
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From page 92... ...
NOTE: Bold—Occupational pensions, Light State Social Security pensions. SOURCE: Blundell and Tanner (1999~.
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From page 93... ...
Those effects in turn depend both on the plan provisions and on individual work histories, marital status, and other individual and family circumstances. As noted earlier, continuation in the labor force can mean a loss in public pension benefits.
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From page 94... ...
Disability, Unemployment, and Private Pension Plan Provisions In many countries, disability and unemployment insurance programs effectively provide for early retirement before the explicit public pension early retirement age. In Germany, for example, the path to retirement for most employees is not the public pension system narrowly defined, but rather unemployment and disability insurance programs.
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From page 95... ...
Perhaps less obvious is the relationship between demographic projections and retirement incentives. For example, projected dependency ratios may depend importantly on pension plan provisions and their effect on the proportion of older persons out of the labor force.
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From page 96... ...
It can be argued that to some extent at least, public pension provisions were adopted to accommodate existing labor force participation patterns, rather than the patterns being determined by the provisions. For example, early retirement benefits could be provided to support persons who are unable to find work and thus already out of the labor force.
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From page 97... ...
A critical feature of these plans is that they have none of the retirement incentive effects of public and other defined-benefit programs. Where these plans are prevalent, it is necessary to collect information that will allow calculation of accrual as a means of understanding likely associated retirement incentives.
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From page 98... ...
Johnson 1998 Pensions and labor force participation in the UK. American Economic Review 88~2~:173-178.
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From page 99... ...
London: Institute for Fiscal Studies. 1999 Pension Plans and Retirement Incentives.
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From page 100... ...
Wise 1990 Efficient windows and labor force reduction. Journal of Public Economics 43:131159.
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From page 101... ...
Cornman 1999 Labor force status transitions at older ages in the Philippines, Singapore, Taiwan, and Thailand, 1970-1990. Journal of Cross-Cultural Gerontology 14:221-244.
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