Flexible combinations of work and retirement
Ageing societies cannot afford to keep the retirement age unchanged. Later retirement implies lower social security expenditures and more tax revenues. There are different ways to stimulate employment among older and disabled workers, e.g. financial incentives, health investments or a higher legal retirement age. In addition to such ‘classic’ policies, flexible combinations of work and 3 second-pillar pension schemes may also stimulate the labour market attachment of older and disabled workers. Current trends in the Netherlands show both higher labour market participation and more flexible combinations of paid work and retirement. The labour market participation between the ages of 65 and 69 has more than doubled over a decade: from 6 percent in 2001 to 13 percent in 2012. 80 percent of this group works part-time, and 40 percent works even less than 12 hours. Participation between the ages of 60 and 64 has risen even more spectacularly over this period, from 18 to 44 percent. Less than half of this age group works full-time. The inflow into the disability pension scheme has decreased by over 60 percentage points and labour participation among disabled workers has risen. Labour market participation past the legal retirement age is also rising in virtually all OECD countries.
Our main research question is: What is the potential of flexible combinations of paid work and occupational pensions, and how does the availability of flexible combinations affect employment and income at old-age? The Dutch occupational pension system allows older workers to combine parttime earnings with a part-time pension and disabled workers to combine part-time earnings with a disability pension. Among the older and disabled clients of two large pension funds, we analyse the combination of paid work and occupational pensions. A unique data set containing individual pension income information is being compiled with the help of Algemeen Burgerlijk Pensioenfonds (ABP) and Stichting Pensioenfonds Zorg en Welzijn (PFZW). The precise observation of individual pension rights allows us to analyse the individual income position at different optional retirement ages under both full and partial retirement. The data are linked to individual records from Statistics Netherlands (CBS) containing, among others, socio-economic variables.
We examine whether the combination of work and pension income leads to increased labour supply and more financial security in retirement. In the first part of the project, we analyse both retirement paths where workers combine part-time earnings with part-time pension and retirement paths where workers claim their full pension. We then investigate the socio-economic determinants of the partial and full retirement decisions. In the second part, we analyse the implications of combining part-time earnings and pensions for the financial well-being of workers in retirement in terms of replacement rates and whether this combination implies a more self-reliant financial security in retirement. We then analyse the socio-economic determinants of the replacement rates. In the third part, we extend the option value model of retirement with partial retirement to analyse the optimal age of partial and full retirement and whether this implies increased total labour supply. We make use of Dutch, German and French micro data, which allow us to exploit a rich source of institutional variation in partial retirement options. We also analyse how the age of partial and full retirement is affected by the recent but also hypothetical pension reforms. In the last part, we investigate whether the new disability reform has induced disabled workers to work part-time instead of not at all or increase their part-time work hours and whether this implies reduced disability pension costs for the government and the pension funds.