How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German Case

Mannheim, 2010. Demographic change poses an evident threat to the financial sustainability of pension systems based on a "pay-as-you-go" (PAYG) scheme. To cope with this threat, pension systems have undergone numerous reforms in many countries in order to keep people longer at work. One crucial element of these reforms typically is an increase in the statutory retirement age at which workers are legally allowed to retire. Two questions arise in this context: "Will people really work longer?" and "Who is likely to retire before the new legal retirement age? And who is not?"

Michela Coppola and Christina Benita Wilke focus on subjective retirement expectations, analysing if and to what extent these are affected by such a policy change. In their paper they consider the legislative reform introduced in Germany in 2007, which gradually will increase the statutory retirement age (SRA) from 65 to 67 years. Using the SAVE survey, a representative panel of German households, the increase of the individuals' expected retirement age (ERA) is estimated as an effect of the reform.

The results show that less productive workers living in relatively wealthier households are more likely to plan an early retirement. The introduction of the reform seems to motivate better educated workers to remain longer in the labour force although it does not seem to completely succeed in keeping women longer in the labour force: especially among the younger cohorts, whose SRA will be 67 years, women are still more likely than men to plan an early retirement. In terms of the magnitude of the effect, the reform shifts the expectations of younger cohorts by almost two years - if these expectations will be realized, the German reform would have been quite successful.


Further Information:
How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German Case.
MEA Discussion Paper 207-10 Coppola, Michela; Wilke, Christina
Picture: focus.de - "Riester-Rente - Sozialverband fordert Nachbesserung" (Jan. 12th, 2008), dpa