Relabelling, retirement and regret – The age limit affects retirement more than financial incentives

The subject of the study was the change made to the Finnish pension system at the beginning of 2005. The study discovered how financial incentives and the age limit affect retirement. Renaming the age limit is called ‘relabelling’ in the study, because in the studied age group, ‘early retirees’ became ‘old age pensioners’ after the reform.

The reform created the so-called ‘flexible retirement age’, as a result of which the age limit for the lowest full pension decreased from 65 years to 63 years. At the same time, continuing to work between the ages of 63 and 68 was encouraged with an annual pension accrual rate of 4.5%, which was commonly called ‘super accrual’.

An international study has found that people usually retire as soon as they reach the age that entitles them to a full pension. In the past, it has been difficult to distinguish how much age itself controls retirement, and how much influence financial incentives have.

The study found that financial incentives matter in the decision to retire. However, the change in the retirement age guided retirement decisions the most. The study also found that early retirees are more likely to return to the labour market than others.

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Gruber, Jonathan, Kanninen, Ohto & Ravaska, Terhi (2022). Relabeling, retirement and regret. Journal of Public Economics.

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