Implications of Full and Partial Retirement for Replacement Rates in a Defined Benefit System

In this paper we use the actual rules and formulas of an occupational pension fund, the state pension fund and the tax systemin the Netherlands to calculate net replacement rates at each age from 60 to 70 in full and partial retirement scenarios. We thenvary the parameters of the pension formulas to study the sensitivity of the replacement rates. We also analyze the implications oflate full retirement and partial retirement for the occupational and state pension entitlements. We pay particular attention to theretirement scenarios that are relevant for the current policy measures, aimed at making people work longer. We find that in the fullretirement scenarios the replacement rates depend substantially on the underlying parameters of the pension system and on workercharacteristics. In the partial retirement scenarios these changes are much less substantial. We also find that partial retirementresults in a much smoother income path and encourages employees to defer their pension claims beyond age 65.