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Retirement behaviour and the role of financial incentives

Retirement behaviour and the role of financial incentives. Gemma Tetlow Institute for Fiscal Studies and University College London. Employment rates of older men in the UK, 1968-2005. 50-54. 55-59. 60-64. 65-69. Source: Labour Force Survey. What are the determinants of work status?.

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Retirement behaviour and the role of financial incentives

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  1. Retirement behaviour and the role of financial incentives Gemma Tetlow Institute for Fiscal Studies and University College London

  2. Employment rates of older men in the UK, 1968-2005 50-54 55-59 60-64 65-69 Source: Labour Force Survey

  3. What are the determinants of work status? • Wealth • Pensions, other forms of wealth • Potential wage • Health and functioning • Labour market attachment • Work history (retrospective and administrative linked data) • Household demographics and family circumstances • Partner’s financial situation, caring responsibilities, complementarities of leisure • ELSA provides insight into all these circumstances • Plus…internationally comparable which allows exploitation of, for example, policy differences

  4. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age

  5. Inactivity and retirement amongst men By age and wealth 50 to 54 55 to 59 60 to 64 Source: Banks and Casanova (2003) using ELSA microdata

  6. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well

  7. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with likelihood of working (and probability of exit)

  8. Employment rates, by age, gender and health women men Source: Banks and Casanova (2003), using ELSA wave 1microdata

  9. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with probability of work, and probability of exit • Expectations of future working follow the same patterns

  10. Expectations of being in work at age 60 (65), by wealth decile Source: ELSA wave 1microdata

  11. Expectations of future working from wave 1 were correlated with subsequent outcomes Percentage in work in wave 3, by reported work expectations at wave 1

  12. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with probability of work, and probability of exit • Expectations of labour market exit follow the same patterns • Preliminary evidence on pension membership suggested financial incentives matter

  13. Proportion reporting ‘low’ chances of employment after age 60, by pension type Men 50–59 Source: ELSA wave 1microdata

  14. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with probability of work, and probability of exit • Expectations of labour market exit follow the same patterns • Preliminary evidence on pension membership suggested financial incentives matter • This remains true once we control for other factors (Banks et al, 2007) • Financial incentives from private pensions most important for those in good health • Financial incentives from state pensions most important for those in middle of wealth distribution

  15. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with probability of work, and probability of exit • Expectations of labour market exit follow the same patterns • Preliminary evidence on pension membership suggested financial incentives matter • Impact of partner’s work status on individual’s retirement decision? • Comparability of ELSA to similar study in US (HRS) allowed exploitation of policy differences across the two countries to explore importance of partner’s behaviour (Banks, Blundell and Casanova, 2007)

  16. Change in employment, by age crossed between waves: US Social Security: early retirement at 62, retirement on full pension at 65

  17. Change in employment, by age crossed between waves: England State pension: women receive at 60, men receive at 65

  18. ELSA findings • States and transitions: • ‘Low’ rates of participation well before State Pension Age • Early labour market exit is U-shaped in wealth as well • Health correlated with probability of work, and probability of exit • Expectations of labour market exit follow the same patterns • Preliminary evidence on pension membership suggested financial incentives matter • Impact of partner’s work status on individual’s retirement decision? • Comparability of ELSA to similar study in US (HRS) allowed exploitation of policy differences across the two countries to explore importance of partner’s behaviour • Comparable labour market outcomes in US and England before age 60 • Significant response of English men to wife turning 60

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