Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications

  • Daniel Kemptner Daniel Kemptner
  • Holger Lüthen Holger Lüthen
  • Timm Bönke Timm Bönke

In aging societies, information on how to reform a pension system is essential to policy makers. This study scrutinizes the introduction of early retirement disincentives by a major pension reform in Germany. Employing administrative pension data and a detailed model of the German tax and social security system, we estimate a structural retirement model to examine to what extent disincentives are able to steer retirement behavior. We find that labor market participation and retirement behavior in general are strongly influenced by the level of disincentives. Looking at distributional, individual welfare and fiscal implications, we identify non-negligible individual welfare losses. For cohorts 1939 to 1945, the actually implemented disincentive level translates into net public
returns of about 10 billion €.

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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