1 Introduction
The design of retirement income policies can have a major effect on people’s retirement decisions.[1] This paper looks at the evidence on changing employment and retirement patterns among older people in response to changes in public pension policy and in particular the age of eligibility for New Zealand Superannuation (NZS).[2] Two clear policy changes to the eligibility age have occurred within the past 30 years: an instantaneous drop in the age of eligibility in 1977 and a progressive increase in the age from 1992. These two natural experiments enable us to estimate the strength of the labour force participation response to NZS eligibility by older workers.
In common with many other countries, New Zealand experienced declining rates of employment among older people during the 1970s and 1980s, despite improving life expectancies. However, the past decade has seen a significant reversal of this trend in New Zealand, making this country an ‘outlier’ of particular interest to other countries concerned to manage the burgeoning costs of their public pension schemes and the prospect of a shrinking workforce.
This paper is structured as follows. Section 2 describes the trend towards earlier retirement across many OECD countries and how the financial incentives embedded within public pension policy influence retirement decisions and can lead to clear differences in patterns of older persons’ labour force participation over time and across countries. Section 3 analyses the participation/retirement incentive effects inherent in the New Zealand public pension system and describes the policy changes in 1977 and 1992 that appear to have triggered large shifts in behaviour. Section 4 presents the estimates of the effect on labour force participation of these policy changes and Section 5 draws some conclusions.
Notes
- [1]The OECD (1991) noted four possible interpretations of the term “retirement”: complete withdrawal from the labour force, the termination of a particular career path with a shift to a “subsidiary” job, a substantial reduction in weekly hours worked in the “main” job, and a change in a person’s income mix such that a significant share is in the form of pension income. In this paper I use the first meaning: complete withdrawal from the labour force. The results reported here may therefore underestimate the overall effect of policy changes on “retirement” more broadly interpreted to include reduced hours of work.
- [2]This public pension has previously been termed National Superannuation (NS) and Guaranteed Retirement Income (GRI).
