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Pension incentives to retire

Pension incentives to retire . Edward Whitehouse Slovenia, June 200 7. Agenda. When can people retire? Retirement incentives Sensitivity analysis Policy implications. Normal pension age. USA. DNK. GBR. IRL. NLD. POL. CYP. DEU. AUT. FIN. ESP. SWE. BEL. ITA. JPN. LUX. GRC.

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Pension incentives to retire

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  1. Pension incentives to retire Edward Whitehouse Slovenia, June 2007

  2. Agenda • When can people retire? • Retirement incentives • Sensitivity analysis • Policy implications

  3. Normal pension age USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE EST HUN SVK Pension eligibility age for men MLT FRA 55 56 57 58 59 60 61 62 63 64 65 66 67

  4. Normal pension age USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE EST HUN SVK Pension eligibility age for men MLT FRA 55 56 57 58 59 60 61 62 63 64 65 66 67

  5. Normal pension age: women USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE EST HUN SVK Pension eligibility age for women MLT FRA 55 56 57 58 59 60 61 62 63 64 65 66 67

  6. Retirement windows USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE EST HUN SVK Pension eligibility age (early/normal) for men MLT FRA 55 56 57 58 59 60 61 62 63 64 65 66 67

  7. Retirement duration Average: 17.7 years USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE Additional life expectancy at normal pension age, men, 2004 Eurostat data EST HUN SVK MLT FRA 10 12.5 15 17.5 20 22.5 25 27.5 30

  8. Retirement duration: men, 2004 Average: 19.9 years USA DNK GBR IRL NLD POL CYP DEU AUT FIN ESP SWE BEL ITA JPN LUX GRC PRT SVN LIT LAT CZE Additional life expectancy at normal and early pension ages, men, 2004 Eurostat data EST HUN SVK MLT FRA 10 12.5 15 17.5 20 22.5 25 27.5 30

  9. Measuring incentives to retire • Relationship between incomes in and out of work: • out of work: retirement pension • in work: earnings • ratio of the two is the conventional ‘replacement rate’ • But extra work can give extra pension entitlement • Captured by the ‘change in pension wealth’ from working longer • pension wealth is present value of future pension receipts • an implicit tax/subsidy on remaining in work • Level of pension wealth also matters • Focus on age 60-64

  10. Change in pension wealthAge 60-64, average earner, entry at 25 50 25 USA SWE GRC CYP PRT BEL MLT 0 LUX NLD POL FIN CZE EST SVK IRL FRA SVN HUN ESP AUT DEU JPN DNK GBR LAT ITA LIT -25 Annualised; per cent of annual earnings -50

  11. Level of pension wealthAge 60, average earner, entry at 25 Pension wealth at age 60, multiple of annual earnings 20 15 10 5 0 GBR IRL POL DEU SVK BEL CZE SWE DNK AUT PRT NLD LUX MLT JPN USA LIT LAT EST FIN FRA CYP ITA HUN SVN ESP GRC

  12. Pension wealth: changes and levels

  13. Conclusions – incentives • Early retirement permitted with low (e.g. Hungary, Portugal) or zero (e.g. Belgium, Greece, Luxembourg) reduction in benefits • Zero or too small increments for people deferring retirement (e.g. France, Slovenia, Spain) • Earnings tests that prevent people combining work and pension (e.g. Belgium, Ireland, Malta, Luxembourg) • Systems that require contributions even when little or no extra benefit is earned (e.g. maximum number of years in Belgium, Greece, Spain, United States) • Resource tests can encourage retirement at earliest opportunity for low earners (e.g. France, Portugal, Sweden) • Benefit formulae with higher pension accruals at younger ages (e.g. Spain) or pensions based of ‘final’ or ‘best’ earnings, which encourage people to retire once pay has peaked (e.g. Greece, Spain)

  14. Contact information • Edward Whitehouse • +33 1 45 24 80 79 • edward.whitehouse@oecd.org • ELS/SPDOECD2 rue Andre PascalParis 75775 Cedex 16France • Internet: www.oecd.org/social/ageing/PaG

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