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Exit from Early Retirement: Paradigm Shifts, Policy Reversals, and Reform Obstacles

Bernhard Ebbinghaus

in Reforming Early Retirement in Europe, Japan and the USA

Governments have realized the negative impact of early retirement on social expenditures and labor costs, responding with a paradigm shift away from passive labor market policies. Governments seek to ... More

Governments have realized the negative impact of early retirement on social expenditures and labor costs, responding with a paradigm shift away from passive labor market policies. Governments seek to reverse early exit by raising the retirement age in pension systems, reforming disability insurance, closing special early retirement programs, activating older workers, and fostering gradual transitions to retirement. These reforms met many obstacles given the entrenched multiple pathways and status quo defense of the social partners, particularly as benefits came to be viewed as acquired rights.Less

The Protection‐Pull Factors: Multiple Pathways to Early Exit

Bernhard Ebbinghaus

in Reforming Early Retirement in Europe, Japan and the USA

There are multiple pathways to early exit from work: early pensions (retirement age before 65), flexible and partial pensions, special preretirement schemes, long-term unemployment benefits, and ... More

There are multiple pathways to early exit from work: early pensions (retirement age before 65), flexible and partial pensions, special preretirement schemes, long-term unemployment benefits, and disability pensions. Early exit from work often emerged as an unintended consequence of progressive social policies. But once institutionalized, these exit pathways were difficult to reform, particularly in Continental European welfare states. In contrast, fewer and less generous pathways exist in Scandinavia, Anglophone economies, and Japan.Less

Ever Earlier Retirement: Comparing Employment Trajectories

Bernhard Ebbinghaus

in Reforming Early Retirement in Europe, Japan and the USA

The chapter analyzes the main trends and cross-national variations in early exit from work for eight European countries, Japan, and the USA. Participation levels and employment rates of older workers ... More

The chapter analyzes the main trends and cross-national variations in early exit from work for eight European countries, Japan, and the USA. Participation levels and employment rates of older workers between age 55 and 64 have declined. Cohort-adjusted early exit rates for both men and women show not only a rise in early retirement over the 1970s and early 1980s, but also substantial cross-national differences. Early exit from work is widespread in Continental Europe, less so in Scandinavia, Anglophone market economies, and in Japan.Less

Chapter Chapter The Role of 401(k) Accumulations in Providing Future Retirement Income

Sarah Holden and Jack VanDerhei

in Restructuring Retirement Risks

As defined contribution plans are increasingly being offered as the primary employer-sponsored pension, it is of interest to ask whether these accumulations are likely to yield sufficient retirement ... More

As defined contribution plans are increasingly being offered as the primary employer-sponsored pension, it is of interest to ask whether these accumulations are likely to yield sufficient retirement income. This chapter uses a projection model to explore alternative future scenarios for retirees who had 401(k) plans available to them over their full working careers. It also assesses the impact of ‘catch-up’ contributions, saving through an individual retirement account when an employer does not offer a 401(k) plan, and changing retirement ages.Less

The Evolution of Public Sector Pension Plans in the United States

Robert L. Clark, Lee A. Craig, and Neveen Ahmed

in The Future of Public Employee Retirement Systems

Municipal governments in the United States began offering retirement plans for their workers in the mid-nineteenth century, and state governments followed in the early twentieth century. As these ... More

Municipal governments in the United States began offering retirement plans for their workers in the mid-nineteenth century, and state governments followed in the early twentieth century. As these plans matured, they confronted economic, social, and political challenges, including the creation of the Social Security system, which subsequently shaped their structure, governance, and generosity. After reviewing this history, the authors employ data from all fifty states to estimate a pension benefit equation for hypothetical workers and explain differences in the generosity of plans across states and types of workers covered. The authors show that population growth, plan funding, union representation, and participation in Social Security influenced the generosity of the plans.Less

How Elastic Is the Response of the Retirement-Age Labor Supply? Evidence from the 1993 French Pension Reform

Antoine Bozio

in Pension Strategies in Europe and the United States

This chapter discusses the key parameter of labor-supply elasticity of older workers using the 1993 pension reform in France and the implications of the long-run effects of the 1993 and 2003 reforms. ... More

This chapter discusses the key parameter of labor-supply elasticity of older workers using the 1993 pension reform in France and the implications of the long-run effects of the 1993 and 2003 reforms. It cites a study on the pension reform of 1993 implemented by the government of Edouard Balladur that restricted the conditions for obtaining a full pension in order to reduce the amount of pensions by increasing the period taken into account to compute the reference wage. It also shows an overall assessment of the impact of the 1993 French pension reform. The chapter confirms the strong correlation between social security parameters and labor-force participation displayed with cross-country data.Less

China: Potential Directions for Reform

Nicholas Barr and Peter Diamond

in Reforming Pensions: Principles and Policy Choices

This chapter sets out a series of recommendations to strengthen the pension system of China in ways compatible with China's capacity to implement reforms effectively. It first discusses overall ... More

This chapter sets out a series of recommendations to strengthen the pension system of China in ways compatible with China's capacity to implement reforms effectively. It first discusses overall structure and administration. It then considers options for the basic pension, individual accounts, and voluntary pensions, respectively. The chapter also discusses issues connected with the age of retirement, and finally it considers ways of extending coverage to more of the population.Less

The Effect of Social Security on Retirement in the United States

Courtney Coile and Jonathan Gruber

in Social Security Programs and Retirement around the World: Micro-Estimation

This chapter examines the impact of Social Security (SS) on retirement, taking advantage of newly available data on retirement behavior and methodological advances in retirement modeling over the ... More

This chapter examines the impact of Social Security (SS) on retirement, taking advantage of newly available data on retirement behavior and methodological advances in retirement modeling over the past decade. The data set, the Health and Retirement Study, follows a sample of near-retirement-age individuals starting in 1992 and contains detailed information on demographic and job characteristics, labor force attachment, earnings histories, health, and private pensions. The study has two major findings. First, retirement appears to respond much more to SS incentive variables defined with reference to the entire future stream of retirement incentives than to the accrual in retirement wealth over the next year alone, indicating that it is important to include forward-looking measures such as peak value or option value in retirement models. Second, simulations of the effect of two possible policy changes—raising the early and normal retirement ages by three years or moving to a system with a flat benefit of 60 percent of earnings—show that these policy changes could have significant effects on retirement behavior.Less

Twenty‐First‐Century Pensions Issues

Nicholas Barr

in The Welfare State as Piggy Bank: Information, Risk, Uncertainty, and the Role of the State

Two sets of issues will become increasingly salient. The first part of the chapter discusses strategies to address population ageing, with heavy emphasis on two policies – increasing economic growth ... More

Two sets of issues will become increasingly salient. The first part of the chapter discusses strategies to address population ageing, with heavy emphasis on two policies – increasing economic growth and raising the retirement age. The second part of the chapter discusses the possibility of pension design that is compatible with national and international labour mobility, fragmented family structures, and international competitive pressures. A particular question is whether it is possible to design pensions that have not only the advantages of defined‐contribution schemes (improved labour mobility) but also the advantages of defined‐benefit schemes (greater individual certainty).Less

Micro-Modeling of Retirement in Belgium

Arnaud Dellis, Raphaël Desmet, Alain Jousten, and Sergio Perelman

in Social Security Programs and Retirement around the World: Micro-Estimation

The widespread use of various early retirement programs makes Belgium the country with the lowest average retirement age in the Western world, which is approximately fifty-seven years old for men. ... More

The widespread use of various early retirement programs makes Belgium the country with the lowest average retirement age in the Western world, which is approximately fifty-seven years old for men. This chapter, which studies the incentives pushing people toward retiring early, explicitly models the incentive structure built into the various public retirement and early retirement systems. First, it computes indicators of benefit entitlement, such as social security wealth, and then defines several different incentive measures based on the notion of social security wealth. In a third step, the empirical estimation of microeconometric probit and option value models is performed. From an exceptionally rich and broad database, an accurate measure of all individuals' pension wealth was determined, as well as of the implicit tax rates the elderly workers face in case of delayed retirement.Less

Life-cycle Asset Allocation Strategies and the Distribution of 401(k) Retirement Wealth

James M. Poterba, Joshua Rauh, Steven F. Venti, and David A. Wise

in Developments in the Economics of Aging

This chapter presents evidence on the distribution of balances in 401(k)-type retirement saving accounts under various asset allocation strategies that investors might choose. In addition to a range ... More

This chapter presents evidence on the distribution of balances in 401(k)-type retirement saving accounts under various asset allocation strategies that investors might choose. In addition to a range of age-invariant strategies, such as an all-bond and an all-stock strategy, it considers several different life-cycle funds that automatically alter the investor's mix of assets as he or she ages; and a no lose allocation strategy, in which households purchase enough riskless bonds at each age to ensure that they will have no less than their nominal contribution when they reach retirement age, and then invest the balance in corporate stock. The results suggest several conclusions about the effect of investment strategy on retirement wealth. First, the distribution of retirement wealth associated with typical life-cycle investment strategies is similar to that from age-invariant asset allocation strategies that set the equity share of the portfolio equal to the average equity share in the lifecycle strategies. Second, the expected utility associated with different 401(k) asset allocation strategies, and the ranking of these strategies, is very sensitive to three parameters: the expected return on corporate stock, the relative risk aversion of the investing household, and the amount of non-401(k) wealth that the household will have available at retirement.Less

Introduction: Ignoring the Obvious

Judith Ann Trolander

in From Sun Cities to the Villages: A History of Active Adult, Age-restricted Communities

This study focuses specifically on the development of age-restricted, active adult communities, not naturally occurring retirement communities, or age-targeted retirement communities. Neither type of ... More

This study focuses specifically on the development of age-restricted, active adult communities, not naturally occurring retirement communities, or age-targeted retirement communities. Neither type of community bans those under the age of nineteen as permanent residents. Furthermore, neither is likely to have 80 percent or more of its housing units occupied by at least one person who is age fifty-five or older. The age-restricted communities have the highest concentration of the elderly. This history also focuses on communities that have at least five hundred residential units, not single buildings or smaller developments. This study does not cover trailer courts, recreational vehicle parks, or manufactured-home communities, all of which continue to be tremendously popular with retirees, particularly in Florida but elsewhere in the Sunbelt as well.Less

Sweden: an extended working life policy that overlooks gender considerations

Clary Krekula, Lars-Gunnar Engström, and Aida Alvinius

in Gender, Ageing and Extended Working Life: Cross-National Perspectives

The Swedish government policy on extended working life has since its introduction in the mid-1990s aimed to lower the costs of the public pension system and to reduce the financial burden for ... More

The Swedish government policy on extended working life has since its introduction in the mid-1990s aimed to lower the costs of the public pension system and to reduce the financial burden for workers. By focusing on an idealised category of those who are "willing and able to work longer", the policy has neglected the obstacles faced by those with physically demanding jobs or with a big responsibility to care for a close relative. This mainly affects women and upholds a neoliberal view of older people. By only problematizing gender perspective on the challenges to gender equality in working life, a narrow understanding of gender equality is created which deviates from other national gender equality policies. The policy debate thereby contributes also to excluding older women and men from the Swedish gender equality project. Despite the argument that an extended working life is needed to ensure the value of pensions, this does not apply to those who are unable to continue working - they are instead expected to rely on the social security scheme.Less

Demographics and the Political Sustainability of Pay-as-You-Go Social Security

Theodore C. Bergstrom and John L. Hartman

in Pension Strategies in Europe and the United States

This chapter discusses the factors that affect the political support for pay-as-you-go (PAYG) retirement plans in the U.S., including the impact of changes in social security benefits on the value of ... More

This chapter discusses the factors that affect the political support for pay-as-you-go (PAYG) retirement plans in the U.S., including the impact of changes in social security benefits on the value of taxes paid and benefits received for persons of each age and sex groups. It reveals how demographic changes, such as the baby boom of the 1950s and the decline in birth rate, will significantly increase the tax burden imposed by the social security system. In 2001, there were about 5.3 people of working age for everyone age sixty-six or higher. By 2020 this ratio will fall to 4.15, and by 2030 to about 3.2. The chapter also considers projected populations that will gain or lose from the change in retirement age.Less

Historical Background

Abhinav Chandrachud

in The Informal Constitution: Unwritten Criteria in Selecting Judges for the Supreme Court of India

This chapter analyzes historical legislative debates surrounding the establishment of the Federal Court during British rule in India, and debates in the Constituent Assembly about who would get to ... More

This chapter analyzes historical legislative debates surrounding the establishment of the Federal Court during British rule in India, and debates in the Constituent Assembly about who would get to serve on the proposed Supreme Court of independent India. Though arguments were made in favor of appointing the court’s judges from among the ranks of practicing lawyers and ‘distinguished jurists’, the assumption always seemed to have been that the front-running judicial candidate for the court would be a senior High Court judge or High Court Chief Justice. These debates will then be contrasted against the actual practice of recruitment on the Federal Court of India before the constitution came into being. It will be seen that informal communal quotas prevailed, much against the desires of colonial legislative policymakers, and that the character of the court was transformed after independence, where all the judges were former High Court judges.Less

Reforming Pensions

Anders Åslund and Simeon Djankov

in Europe's Growth Challenge

Europe is aging rapidly, and the old need pensions and care. As a share of the active population aged 15−64, the European population aged 65 or above is projected to increase from 28 percent in 2016 ... More

Europe is aging rapidly, and the old need pensions and care. As a share of the active population aged 15−64, the European population aged 65 or above is projected to increase from 28 percent in 2016 to 53 percent in 2060. Consequently, an increasing share of national income will cover pension expenditures. In 2013, old-age pensions accounted for an average of 9.2 percent of GDP in the EU-28, to compare with 6.1 percent of GDP in the United States. European pension systems vary greatly, but they appear to be converging. Early pension schemes are reined in. Retirement ages are set to rise with longer life expectancy. The Dutch pension system appears the best. Comprehensive pension reform would aim at a three-pillar system with a minimum public pension guaranteed to all, a second pillar of a pension based on mandatory private savings, and a third pillar of voluntary private savings.Less

Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations

Dirk Krüger and Axel Börsch-Supan

Alexander Ludwig (ed.)

in Social Security Policy in a Changing Environment

This chapter evaluates the welfare consequences of the demographic transition per se and not just the alternative Social Security reform scenarios, as well as in the analysis of the distributional ... More

This chapter evaluates the welfare consequences of the demographic transition per se and not just the alternative Social Security reform scenarios, as well as in the analysis of the distributional consequences of changing factor prices due to population aging. It is reported that that the rate of return to capital can be expected to decrease by about 80–90 basis points until 2050, with a corresponding increase of wages if PAYGO Social Security systems are reformed such that contribution rates are held constant. It is also shown that increasing the mandatory retirement age by five years is shown to mitigate substantially these losses and to significantly increase the welfare gains of newborns. The welfare gains for newborns are actually larger than what is computed because in addition, these newborns are expected to live longer than the current generation.Less

Saving Social Security

William G. Gale

in Fiscal Therapy: Balancing Today's Needs with Tomorrow's Obligations

Social Security is among the nation’s most popular and successful programs, as discussed in Chapter 8, providing crucial income every year for tens of millions of retirees, surviving spouses, ... More

Social Security is among the nation’s most popular and successful programs, as discussed in Chapter 8, providing crucial income every year for tens of millions of retirees, surviving spouses, dependents, and the disabled. But the program is financially unsustainable. The taxes that today’s workers pay go mainly to cover the benefits of today’s retirees. As a result, the coming rise in the number of retirees relative to workers will leave the program with too little revenue to pay all the benefits workers have earned starting in about 2034. Policymakers should enact a 2016 plan proposed by a Bipartisan Policy Center commission. It would bring Social Security into long-run fiscal balance by raising taxes and cutting benefits in a progressive manner, protecting the poor, raising the retirement age, encouraging people to work longer, and fixing the way Social Security calculates inflation.Less