Retirement, pensions and ageing

We study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy. An overlapping-generations model is constructed which includes a realistic description of the mortality process. Individual agents choose their optimal retirement age, taking into account thetime- and age profiles of wages, taxes, and the public pension system. The early retirement provision in most pension systems acts as a trap, inducing most workers to retire well before the normal retirement age. Simulations show that pension reform must bedrastic for it to have any effects on the retirement behaviour of workers.