Presentation at Trygdeforskningsseminaret, 1. December 2014

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1 Presentation at Trygdeforskningsseminaret, 1. December 2014
Pension reform and labour supply – Flexibility versus Prescription Erik Hernæs in cooperation with Simen Markussen, John Piggott and Knut Røed Presentation at Trygdeforskningsseminaret, 1. December 2014 Joint paper, Part of an on going project at the Frisch Centre, work in progress, suggestions can by followed up and very welcome First briefly on the institutional context and the reform, setting for framework for the analysis Then on the approach Then results

2 Previous results Other studies show increased work from from 2011 (NAV) Mostly where expected: with private sector AFP Also extensive take-up of public pension Særlig fra NAV ... For å identifisere effekten av selve reformen Kontrollgruppe trengs

3 Economic incentives not everything
Health conditions may modify responses Gradually changing norms may modify responses Decisions may be made at the household level The rules must be understood Valuation of income streams may vary … Kan gjøre at effektene endres over tid Vi ser kun på individuell atferd For eksempel aktuariell justering: hvor mye det årlige pensjonsbeløpet øker når en venter med å ta ut mellom personer og avvike fra FT-disk

4 Work incentives and pension options after the reform
No earnings test of pensions in the private sector Access to the public social security (FT), contingent on minimum entitlements Public sector unchanged apart from longevity adjustment The aspects of the reform with effect from 2011, Not used here Long adj, main fiscal driver. “Prelude”: Earnings test removed stepwise Increases work incentives and flexibility. Ca 5% increase per year deferral annual level 62-67, replaces main part of private sector early retirement. Life, lower, supplement to “buy out” unions (agreement based) May mean delay, wait until act adj gives min at 67 Strenghten link earning-pension? Poverty prevention? Serves as a control group

5 Two way classification
Look at introduction of flexibility: Repeal ET, AF Reduce access age w AF Reduce access age w/ET

6 Data Administrative register data covering the whole population
Demography, employment, earnings, sickness, disability, pensions Firm info: Participation in early retirement programmes Observations of individuals who worked at 60 with earnings at 63 Birth cohorts and 1949 Lacking in ”soft” data on plans, preferences etc and health (apart from absence from work) Gradually established and prepared for research over 20 years at the Frisch Centre, which pioneered this in Norway New for this project

7 60 for å unngå ”forhåndstilpasning”, 63 for å unngå overgangsåret
Utvalget: >1 G inntekt og ikke mottak av uføre (0.2 G) ved 60 Seks grupper som tidligere slide: 1: off (med ind) og tidl FT 2: Pr afp (med ind) og tidl FT 3 Ikke AFP, tidlig FT 4: Off (med ind) uten tidl FT 5: Pr afp (med ind) uten tidl FT 6: Ikke AFP, ikke tidl FT Plott: Gj sn inntekt ved 63, kull for kull. før, 2011 ”overgang”, 2012 etter Gruppe 2 og 5 sterkt pårvirket og sterk reaksjon Ulike inntektsnivå i gruppene og ulik sammensetnin kjønn og utdanning

8 De tre følgende plansjer: Oppdeling i andel som jobber og gjennomsnittlig inntekt blant dem
Viser altså ”normal” uttrekning av arbeidslivet, og hvordan reformen påvirket denne Kurvene: Rød: Andelen med årsinntekt 63 > 0.2 G Svart årsinnt 63/ årsinntekt 60 blant disse Flexibility Gr 2 vs 6 Venste: Pr afp økt avk av å arbeide etter 62 Høyre ingen afp elle adgang til ny FT: dvs upåvirket Klart økt andel som jobber og med høyere inntekt, blant pr afp, med økte insentiver Gr 6 Ikke AFP: Lavere inntekt, mange kvinner

9 Prescription Heve pensj alderen
Gr 5 vs 6 Venstre: Mister sin tidlige pensjon (I hvert fall fra 62) Høyre : Som forrige, upåvirket Må jobbe og gjør det: 15 prosentpoeng opp og tilsvarende nedgang pensjonering Økt uføretrygding: Andelen opp med 1/3

10 Gr 3 vs 6 Ny mulighet: tidlig pensjon (Bivirkning av fleksbiliteten) Venstre: Får ny mulighet fra 62: Likviditet, men uten endring i avkastning av å jobbe Høyre : Som forrige, upåvirket Like mange jobber, men litt mindre

11 Measure of work incentives
Return to work: Full time work vs full retirement, after tax After reform, immediate take up of pension From before to after the reform: Change in return to work Within Group 2, year dummies At age 63, seen from age 60 …

12 USD: 6, 2013 Old: Job – pension (both taxed separately) New: Private: (Job + soc sec + new AFP) – (Soc sec + new AFP) (both taxed separately) Public: Job (Old AFP) (both taxed separately) Idea: If immediate take up after reform, subsequent pension stream is the same as before. In the year we study (63) Before: private afp then get either wage of pension, delta is the diff: w - p After: private afp get wage + pension, delta is w Prolonged take up may reduce tax which is progressive, so this is a conservative estimate of the incentive change

13 Main results Repealing the earnings test increases employment and average earnings and reduces retirement Raising the access age increases employment and average earnings, reduces retirement and increases disability Opening a new early retirement option with actuarially adjustment take-up gives a more gradual retirement Raising the access age reduces work, increases retirement and does not affect disability

14 Some modifications Implied elasticities of earnings wrt return to work: 0.14 – 0.24 Only first year after the reform observed Control groups important for the magnitude of the effects