Pension reforms and retirement behaviour

Abstract: This thesis consists of three self-contained essays.Essay 1. Knowledge about how elderly workers react to changes in pension benefits is important in guiding the design of social security systems. This essay contributes to this knowledge by examining the effect of changes in replacement rates on part-time retirement behaviour in Sweden.During the 1980s, older workers had the option of partial retirement with an income replacement rate of 65 percent. The replacement rate was lowered to 50 percent in 1981 and subsequently returned to 65 percent in 1987. Estimates using a linear probability model with register data from the LINDA database suggest that fewer men and women chose part-time retirement after the reduction in benefit levels in 1981. There was an approximate 4 percentage point drop in the partial retirement propensity among eligible 60 year-old men, and a 5.7 percent drop among women. This corresponds to proportional reductions in the retirement propensity by about 29 and 36 percent, respectively. The probability of part-time retirement increased among men by about 3.5 percentage points once benefit levels returned back in 1987, whereas the partial retirement probability of women remained largely unchanged.Essay 2. The Swedish pension reform 1999-2003 provides an opportunity to study whether and how important economic incentives are for the timing of retirement. The new pension system provides a much closer link between contributions and benefits than the former system.I study whether the reform has led to delayed retirement by examining the retirement patterns of elderly individuals in the Swedish labour force who were differentially affected by the reform. I use duration analysis with annual data from the LINDA database. Discrete time proportional hazard models are estimated. There is a clear downward trend in the retirement hazard, implying delayed retirement, among more recent cohorts. Most of the decline occurs among public sector employees.Essay 3. This essay estimates the effect of a change from a de- fined benefit pension system to a defined contribution pension system on retirement behaviour. This is done by examining the occupational pension reform for Swedish local government employees of 1998-2000. Both anticipatory and post reform behavioral response is studied.Time, age, and occupational category provide identification. Both difference-in-differences and triple differences are estimated using the discrete time proportional hazard model on a large representative sample of 60-64 year-olds in the labour market from 1996 to 2005. Estimates indicate that the retirement hazard increased by about 38 percent in anticipation of the reform, and subsequently dropped by about 60 percent.The post reform effect corresponds for an approximate additional average time in the labour force of about 6.5 months for the treated group in the 60-64 age span. This essay shows that changes in pension schemes that contribute relatively little to total individual pension wealth may have disproportionately large effects on retirement behavior if the schemes provides strong incentives for early retirement.