Consequences of the increase in the retirement age on occupational disability

The retirement age is tied to life expectancy in the Netherlands. A higher retirement age implies a larger share of elderly people in the labor force and more people claiming disability benefits, regardless of how much the life expectancy increases. Furthermore, since the duration of the disability benefit lasts until the statutory retirement age, a higher statutory retirement age means more time spent in the disability scheme and higher benefit costs.

Alblas and Koot (2014) and Dillingh et al. (2018) forecast the effect of a higher retirement age on the number disability benefits and the total cost of benefits in the general population of the elderly. In this study, we focus on the older working age population (“the elderly”) who are sick enough and assessed for disability. Since a higher retirement age implies more benefit claims or claiming benefits for a longer duration, we analyze to which extent the elderly who are sick are able to cope with their health impairment and still utilize their remaining work capacity instead of claiming (full) benefits.

Our study consists of three parts. In the first part, we compare the number of hours worked between an older age group (60-64) and a younger age group (55-59) at a lower and higher health status. In the second part, we analyze how the older and younger age groups differ in how they respond to the financial incentives to increase work effort, to infer to which extent a higher retirement age limits work capacity of the elderly assessed for disability. In the third part, we analyze heterogeneity in the effect of a higher statutory retirement age with respect to health status and labor market characteristics to identify the risk groups who are less likely to cope with the increasing retirement age.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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