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PensionReforms' summary and comments
Workforce participation rates have fallen dramatically in Europe over the last 30-40 years. In a number of countries (Belgium, France, Italy and the Netherlands) the participation rate of males aged 60-64 fell below 20%. The natural response to this has been to increase the State Pension Age. Whether that works depends on how individuals react to the financial incentives inherent in the system.
The report uses a data set covering 16 years (1985-2001) from Italy. Earlier studies had shown that Italians tended not to respond rationally - that there was an apparently weak connection between the individuals' total wealth (social security entitlements included) and their decisions to retire. The trouble apparently was with the data - for some reason, the Italian records couldn't supply a date on which Italians joined the social security system (crucial for calculating retirement income entitlements). Earlier reports had to synthesise "seniority".
The report "... combines a new longitudinal dataset, the Working History Italian Panel' (WHIP), with an additional pension file which provides information on seniority. Consequently, in comparison with previous studies we can measure SSW [current Social Security Wealth] and MI [Marginal incentives] with greater precision."
The results are no longer a surprise:
"The effect goes in the expected direction; when employees become eligible for pension benefits the change in financial incentives they experience is so high that their retirement probability increases in a sizable way."
And the reason for the change in results is also expected:
"Our sensitivity analysis suggests that the lack of appropriate information on seniority is an important reason for the unclear evidence so far obtained in retirement studies for Italy."
PensionReforms was interested to see that payroll taxes to pay for this are now 32.7% of covered pay (to ?40,275 a year), shared two-thirds with employers and one third employees. The reactions to design changes are therefore of some financial moment.
PensionReforms thinks it is satisfactory that the Italian data now seems to conform with what might have been expected. Perhaps if findings are a surprise in this kind of area, the data rather than the results should be examined. (File size 560 KB) 215
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Workforce participation rates have fallen dramatically in Europe over the last 30-40 years. In a number of countries (Belgium, France, Italy and the Netherlands) the participation rate of males aged 60-64 fell below 20%. The natural response to this has been to increase the State Pension Age. Whether that works depends on how individuals react to the financial incentives inherent in the system.
The report uses a data set covering 16 years (1985-2001) from Italy. Earlier studies had shown that Italians tended not to respond rationally - that there was an apparently weak connection between the individuals' total wealth (social security entitlements included) and their decisions to retire. The trouble apparently was with the data - for some reason, the Italian records couldn't supply a date on which Italians joined the social security system (crucial for calculating retirement income entitlements). Earlier reports had to synthesise "seniority".
The report "... combines a new longitudinal dataset, the Working History Italian Panel' (WHIP), with an additional pension file which provides information on seniority. Consequently, in comparison with previous studies we can measure SSW [current Social Security Wealth] and MI [Marginal incentives] with greater precision."
The results are no longer a surprise:
"The effect goes in the expected direction; when employees become eligible for pension benefits the change in financial incentives they experience is so high that their retirement probability increases in a sizable way."
And the reason for the change in results is also expected:
"Our sensitivity analysis suggests that the lack of appropriate information on seniority is an important reason for the unclear evidence so far obtained in retirement studies for Italy."
PensionReforms was interested to see that payroll taxes to pay for this are now 32.7% of covered pay (to ?40,275 a year), shared two-thirds with employers and one third employees. The reactions to design changes are therefore of some financial moment.
PensionReforms thinks it is satisfactory that the Italian data now seems to conform with what might have been expected. Perhaps if findings are a surprise in this kind of area, the data rather than the results should be examined. (File size 560 KB) 215
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