 Retirement Under Policy UncertaintyPiera Bello, Vincenzo Galasso and Alessandro Izzo No 12488, CESifo Working Paper Series from CESifo Abstract: This paper examines how policy uncertainty influences retirement decisions. We develop a simple model in which individuals face a one-time choice between immediate retirement and continued employment until the statutory retirement age. In the absence of policy uncertainty, retirement decisions depend solely on the standard income–leisure trade-off. When future pension reforms are uncertain, however, individuals also take into account the perceived risk of increases in the retirement age or reductions in benefit generosity, and may choose to accept the offer in order to lock in current pension rules. Using administrative data from a large Italian bank that offered a one-time early-retirement scheme in 2017, we find that acceptance rates decline with the expected income loss but rise with the number of years to retirement. These patterns are consistent with workers using early retirement as an insurance against potential policy changes, underscoring the importance of incorporating behavioural responses to policy uncertainty in the design of pension systems. Our findings suggest that individuals with an average annual income of €35,000 are willing to pay an annual premium of €481 to insure against the probability that the pension system is reformed. Keywords: retirement; social security; loss aversion; uncertainty; pension reform (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12488 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC. |
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