Pensions and Early Retirement: The Case of the Public Servants in Uganda

Abstract

Retirement, if influenced by pensions, can be a good manifestation of how the government can use the pension system as a fiscal instrument to achieve some socioeconomic targets. Borrowing intuition from the postulations of disengagement theory of aging that when the elderly retire, they free up positions in paid work for the entry of young individuals, this study investigates the role of incentives on early retirement. The high levels of unemployment in Uganda amidst the Public Service’s retirement conditions motivate this inquiry by investigating whether redesigning the pension scheme would induce significant early retirement to address the challenge of unemployment in the country. Using both parametric (probit regressions for marginal effects) and non parametric approaches (difference in marginal effects given the baseline and simulated effects), results show that incentives embedded in the pension scheme do induce significant early retirement, a condition for creating job space within the public service. This implies that pensions are a good possible fiscal instrument for addressing unemployment in uganda.