Gradual retirement, financial incentives, and labour supply of older workers: Evidence from a stated preference analysis

Using data from a stated preferences experiment in the Netherlands, we find that replacing fulltime pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total life-time labour supply, however, decreases with 3.4 months because the positive effect of delayed retirement on labour supply is cancelled out by the reduction in working hours before full retirement. The impact of gradual retirement
schemes is, however, heterogeneous across groups of workers. Workers with non-routine job tasks retire at a later age when they can gradually retire. Financial incentives, either in terms of
changing pension income or the price of leisure, also affect the expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers as the large majority still prefers full retirement. This especially holds for workers with a lower wage and those with higher life expectancy.

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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