2 Background

New Zealand's population is ageing, owing to both increasing life expectancies and ageing of the baby boomers. The number of individuals aged 65 and older increased 45% between 1986 and 2006, and forecasts indicate this trend will continue (Khawaja and Boddington, 2009; Statistics New Zealand, 2009).

Labour force participation of this group has also increased dramatically in recent decades, from 6% in 1986 to 17% in 2006 (Khawaja and Boddington, 2009). Continued labour force participation has been shown to be positively related to productivity and economic growth (Disney, 1996; Dixon, 2003; Roberston and Tracy, 1998); the health and well-being of older individuals (Alpass, et al., 2008; Butterworth, et al., 2006; Westerlund, et al., 2009) and in alleviating fiscal pressures on the government (Maestas and Zissimopoulos, 2010; OECD, 2005; Vodopivec and Dolenc, 2008).

Key drivers underlying higher participation rates for those aged over 65 are increasing life expectancies, the upward shift in the age of eligibility from 60 to 65 for New Zealand Superannuation phased in through 1992 to 2001 (Hurnard, 2005), and relatively rapid increases in the labour force participation of females.

The female labour force participation rate for those aged 65 or older in the 1986 Census was 2.9%, a time when it was more common for women to spend the majority of their working-age lives in unpaid home production. Whilst participation rates for older women remain lower than their male counterparts, women now represent a larger share of the labour force; their participation rate has quadrupled since 1986 (Khawaja and Boddington, 2009). Looking forward, one might expect participation of women to increase further, as successive cohorts accumulate increasing stocks of human capital.

Population ageing and its implications are of interest internationally, for both research and policy. As such, the development of longitudinal survey datasets focussing on, or at least encompassing, older individuals is not limited to New Zealand. Comparable international datasets to the HWR and NZLSA include the Survey of Health, Ageing and Retirement in Europe (SHARE); the Health and Retirement Study in the United States (HRS) and the English Longitudinal Study of Ageing (ELSA). Comparing these three surveys, cross-country differences in retirement patterns are found to be largely due to differences in welfare institutions; specifically, pensionable retirement ages have a large influence on retirement patterns.

Health and disability are also important; typically lower self-reported health status is associated with higher probability of retirement. SHARE has the lowest participation rates relative to the North American and English surveys, and additionally has a much higher proportion of female homemakers, particularly in continental Europe. This suggests differences in participation rates are also in some part explained by heterogeneity of social norms and customs (Borsch-Supan, et al., 2008).

In contrast to many other OECD countries, New Zealand has experienced high and increasing labour force participation, particularly since 1991 (Hurnard, 2005), and this trend appears set to continue. This is reflected in the average expected age of complete retirement reported in HWR and NZLSA, which has shifted out over time (see Figure 1).

Figure 1 - Distribution of expected ages of complete retirement: by survey year

Source: HWR and NZLSA longitudinal sample.

Notes:

1. Expected retirement ages above 85 have been excluded from density.
2. Includes only those who are in the labour force for all three waves, and report an expected retirement age.
3. Vertical lines indicate the mean expected retirement age for each wave.

Patterns of retirement in New Zealand have found to be associated with pensionable age (Hurnard, 2005) and with health and marital status (Enright and Scobie, 2010). The latter study was based on the first wave of the HWR survey.

This paper uses longitudinal data, allowing a richer analysis of the different factors likely to affect the decision to participate, or retire, over time. A particular focus is on the effect of health on participation.

Theoretically, the effect of health on retirement is ambiguous. Ill health may:

Empirical evidence tends to confirm a robust negative relationship between ill health and participation, over a range of datasets. Examples include the Health and Retirement Survey (Bound, et al., 1998; Maurer, et al., 2011); the British Household Panel Survey (Disney, et al., 2003); the Household, Income and Labour Dynamics in Australia (Lixin Cai and Kalb, 2007); the Health, Work and Retirement Survey (Enright and Scobie, 2010; Pond, et al., 2010).

The health of older individuals is also important for government expenditure, as health costs rise with age. Whilst non-demographic factors such as wage increases and technology advances remain key drivers of health expenditure, improvements in health are important in offsetting fiscal pressures generated by structural population ageing (Bryant, et al., 2004).