Flexible Retirement An International Perspective

Transcription

1 Flexible Retirement An International Perspective Sebastian Kluth Joint work with: Axel Börsch Supan, Tabea Bucher Koenen, Marlene Haupt, Vesile Kutlu Koc, Nicolas Goll Max Planck Institute for Social Law and Social Policy (MEA MPISOC), Munich Munich, November 2014

2 Current Discussion Coalition Agreement between CDU/CSU and SPD in Increase the labor market participation and the hours worked of older workers 2. Allow for a more flexible transition form work to retirement Ex ante unclear whether more flexibility can achieve the first goal Source: CDU, CSU and SPD (2013) 2/18

3 Flexible Retirement What is a flexible transition in retirement? Definition: Reduction of working hours/effort of older workers Partial compensation of income loss Total Income Full Time Phase Full Salary (100%) Age 3/18

4 Flexible Retirement What is a flexible transition in retirement? Definition: Reduction of working hours/effort of older workers Partial compensation of income loss Total Income Full Time Phase Flexible Phase Full Salary (100%) Partial Salary (e.g. 50%) Reduction working hours Age 3/18

5 Flexible Retirement What is a flexible transition in retirement? Definition: Reduction of working hours/effort of older workers Partial compensation of income loss Total Income Full Time Phase Full Salary (100%) Flexible Phase Additional Income Partial Salary (e.g. 50%) Age 3/18

6 Flexible Retirement What is a flexible transition in retirement? Definition: Reduction of working hours/effort of older workers Partial compensation of income loss Total Income Full Time Phase Full Salary (100%) Flexible Phase Additional Income Partial Salary (e.g. 50%) Full Retirement Phase Pension Income Age 3/18

7 What is a flexible transition? Flexible Retirement Definition: Reduction of working hours/effort of older workers Partial compensation of income loss Benefits Gradual reduction of stress and responsibility Avoids abrupt change in life Preserves valuable human capital for employers Goal Extension of working life and increase in total labor supply in hours 4/18

8 Flexible Retirement Potential effects of flexible transition In a world where no flexible retirement transition exit, workers may only choose to Group 1: Work full time Group 2: Fully retire Potential effects of the introduction of flexible retirement on A. Labor market participation rate B. Total hours worked 5/18

9 Flexible Retirement A. Labor market participation rate (PR) Group 1 Works full time, PR=100% no change in PR Group 2 Fully retires, PR=0% increase in PR Hours Worked Total Labor Supply Participation Rate 6/18

10 Flexible Retirement A. Labor market participation rate (PR) Group 1 Works full time, PR=100% no change in PR Group 2 Fully retires, PR=0% increase in PR Hours Worked Total Labor Supply Overall participation rate Participation Rate 6/18

11 Flexible Retirement B. Total hours worked (THW) Group 1 Works full time decreases THW Group 2 Fully retires increases THW 7/18

12 Flexible Retirement B. Total hours worked (THW) Group 1 Works full time decreases THW Group 2 Fully retires increases THW Hours Worked Total Labor Supply Hours Worked Total Labor Supply Participation Rate Participation Rate Total hours worked 7/18

13 Flexible Retirement B. Total hours worked (THW) Group 1 Works full time decreases THW Group 2 Fully retires increases THW Hours Worked Total Labor Supply Hours Worked Total Labor Supply Participation Rate Participation Rate Total hours worked Net effect on labor supply is unclear ex ante 7/18

14 Research Question What can we learn about flexible pathways to retirement from other countries? Source: digitale-europakarte.de 8/18

15 Austria Subsidized Old Age Part Time Scheme in Austria Reform introduced in 2000 Objective: Increase labor supply of older workers through flexible retirement Characteristics Bilateral agreement between employer and employee Reduce working hours to between 40% and 60% (block model possible) 50% of income loss compensated (up to 75% of the original gross wage) 100% of social security contributions Minimum access age: 50 for women and 55 for men Source: Graf et al. (2011) 9/18

16 Austria Results for Men Hours Worked Work volume before reform Source: Graf et al. (2011) Retirement Age 10/18

17 Austria Results for Men Hours Worked Work volume after reform +1% Participants work marginally longer Source: Graf et al. (2011) Retirement Age 10/18

18 Austria Results for Men Hours Worked Total hours decrease -29% Work volume after reform +1% Participants work marginally longer Source: Graf et al. (2011) Retirement Age 10/18

19 Austria Results for Men Hours Worked Total hours decrease -29% Work volume after reform +1% Participants work marginally longer Retirement Age Part-time scheme reduces work volume Source: Graf et al. (2011) 10/18

20 Finland Part Time Pension in Finland Workers reduce hours worked to 35% 70% 50% of income loss compensated by part time pension Earliest eligibility age between 56 and 61 Parallel reforms: Restrictions on other early retirement schemes Window of retirement (accrual rate of 4.5%) Additional pensions rights are accrued until age 68 Source: Ilmakunnas and Ilmakunnas (2006), Finnish Centre for Pensions (2014) 11/18

21 Finland Part Time Pension in Finland Results: Persons retire on a part time pension as soon as they have reached the required minimum age Working part time does not increase the expected length of working life No effect on part time pension on the expected prob. to continue working in the window Part time pensions unable to increase work volume Source: Ilmakunnas and Ilmakunnas (2006), Finnish Centre for Pensions (2014) 12/18

22 Sweden Total Flexibility in Sweden Old partial pension system abolished in 2000 Earliest retirement age 61 No restriction on combination of work and pension income Pension payment depends on age at first payment and cohort life expectancy Partial pension possible (25%, 50% or 75%) 13/18

23 Sweden Total Flexibility in Sweden Empirical evidence I Pensions are drawn earlier Source: SOU (2013) 14/18

24 Sweden Total Flexibility in Sweden Empirical evidence II Labor Force Participation Rate in % No negative effect on labor force participation rate Source: OECD (2014) Labor Force Participation Rate Sweden Age 60 to 64 Age /18

25 Sweden Total Flexibility in Sweden Empirical evidence III No negative effect on labor force participation rate and total hours worked Source: SOU (2013) 16/18

26 Sweden Total Flexibility in Sweden Labour force participation rate in % Labour force participation rate Sweden Age 60 to 64 Age 65+ Current discussion in Sweden Commission focusing on early pension draw Increase of minimum retirement age from 61 to 63 Shift age for drawing social security benefit (minimum pension) from 65 to 66 in /18

27 Effects of partial retirement options Increase in labor force participation (Effect A) However: Negative effect on hours worked (Effect B) The total effect on labor supply of older workers is almost always negative Lessons for Germany Conclusion Flexible retirement and increase in volume difficult to achieve Eligibility age very important due to signaling effect Flexible retirement even more problematic when system is not actuarially fair 18/18

28 Sebastian Kluth Thank You!

29 References CDU, CSU and SPD (2013): Deutschlands Zukunft gestalten,coalitionagreementbetweencdu,csuandspd for the 18th Legislative Period, Berlin. Finnish Centre for Pensions (2014): The Pension System, Pension Benefits, Earnings related Pensions, Part time pension, [ time_pension/1441/part time_pension], accessed November 17, Graf, N., Hofer, H. and Winter Ebmer, R. (2011): Labor supply effects of a subsidized old age part time scheme in Austria, Zeitschrift für ArbeitsmarktForschung, 44(3), pp Ilmakunnas, P. and Ilmakunnas, S. (2006): Gradual Retirement and Lengthening of Working Life, HECER Discussion Paper No. 121, Helsinki Center of Economic Research, Helsinki. OECD (2014): OECD.StatExtracts, Labour, Labour Force Statistics, LFS by sex and age, LFS by sex and age indicators, Sweden, Age and Age 65+ [ LFS_SEXAGE_I_R], accessed November 17, SOU (2013): Åtgärder för ett längre arbetsliv, Slutbetänkande av Pensionsåldersutredningen, 2013:25.