How Sensitive are Subjective Retirement Expectations to Increases in the Statutory Retirement Age? The German Case

Abstract

Population Aging poses an evident threat to the fi nancial 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 typic ally is an increase in the statutory retirement age at which workers are legally allowed to retire. Two questions still remain unanswered: Will people really work longer? Who is more likely to retire before the new legal retirement age? In this paper, we focus on subjective retirement ex pectations, analysing if and to what extent they are affected by such a policy change. We consi der 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 representativ e panel of German households, we estimate the increase of the individuals' expected retirement age (ERA) as an effect of the reform. Our results show that less productive workers livin g in relatively wealthier households are more likely to plan an early retirement. The introd uction of the reform seems to motivate better educated workers to remain longer in the lab our 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 t he effect, we find that the reform shifted the expectations of the younger cohorts by almost two y ears - if these expectations will be realized, this reform would have been quite success ful.