'Earned, Not Given'? The Effect of Lowering the Full Retirement Age on Retirement Decisions

Mathias Dolls and Carla Krolage ()
Additional contact information
Carla Krolage: Ifo Institute for Economic Research

No 16116, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes behavioral responses to a 2014 reform in the German public pension system that lowered the full retirement age (FRA) of individuals with a long contribution history by up to two years and framed the new FRA as reference age for retirement. Using administrative data from public pension insurance accounts, we first document a substantial bunching response at the FRA exceeding the control group's bunching by 83%. Second, we show in a difference-in-difference setting that a 1.0 year decrease in the FRA leads to a reduction in the average pension claiming age by 0.3-0.4 years. Treated individuals neither have poorer health nor are more likely to be liquidity-constrained than individuals in the control group. Our results suggest that the strong responses to the reform are driven both by the new FRA serving as a reference point and by financial incentives. Estimated fiscal costs of the reform are at the upper end of the range of previous back-of-theenvelope calculations.

Keywords: pension reform; early retirement; retirement age (search for similar items in EconPapers)
JEL-codes: H55 J14 J18 J26 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2023-05
New Economics Papers: this item is included in nep-age, nep-eur, nep-hea, nep-lma and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published - revised version published in: Journal of Public Economics; 2023, 223, 104909

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Journal Article: ‘Earned, not given’? The effect of lowering the full retirement age on retirement decisions (2023)
Working Paper: ‘Earned, Not Given’? The Effect of Lowering the Full Retirement Age on Retirement Decisions (2023)
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