nr 115 - Do changes in pension incentives affect retirement? A stated preferences approach to Dutch retirement consideration

DNB Working Papers
Date 4 October 2006

The empirical connection between financial incentives and retirement decisions largely derives from revealed preferences in cross-sectional settings. This raises the issue to what extent unobserved tastes for retirement – which may correlate with job selection and through that route with financial incentives – play a role and can be controlled for. Using a stated rather than a revealed preferences approach, we contribute to this debate. Fielding a survey questionnaire in the Dutch DNB Household Survey we derive empirical estimates of pension adjustment and pension wealth effects. Our main finding is that retrenchments of pension arrangements to the effect of raising the standard retirement age by 1 year induce people on average to postpone retirement by about half a year. Retirement postponement varies across people, depending prominently on earnings and non-pension wealth; affluent people are more likely to capitalize on increased pension wealth through earlier retirement, whereas they more readily accept a lower pension benefit in case of a decrease in pension wealth. JEL classification: D12; D80; J26

Keywords: (Early) retirement; Financial incentives; Survey results