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Age Anchors and the Expected Retirement Age: An Experimental Study

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Abstract

This study examines the sensitivity of the expected retirement age to standard retirement ages in pension overviews (age anchors) via a survey. The results show that individuals expect to retire later when they are confronted with a higher age anchor. The effect of the age anchor on the expected retirement age is driven by women. At the same time, the null hypothesis that the age anchors do not have an effect on the expected retirement age of males cannot be rejected. Interestingly, different socioeconomic subgroups of women are all sensitive to age anchors. A salient age anchor (coinciding with a current or future statutory retirement age) appears to elicit a stronger effect on the expected retirement age than non-salient age anchors.

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Notes

  1. At this moment pension policy reforms in the Netherlands seems to go in the somewhat other direction as the benefits in the first pillar are not decreased but the pension age in the first pillar is increased. At the same time the accrual rate in the second pillar is decreased. On the other hand, one could argue that an increase in the pension age is equivalent to a lowering of the pension benefits as individuals enjoy less benefits over their life-times.

  2. External context influences individual decision-making, while no such effect is expected. An example is the possible influence of ‘defaults’. If individuals do not actively make a choice, they ‘choose’ the default. An example of the relevance of defaults in the pension domain is Beshears et al. (2009), who show that defaults determine contribution rates, participation and choice of investment portfolios in company retirement savings plans in the US. Another example relevant for this study are reference points (Tversky and Kahneman 1991). Possibly individuals start to think about a suitable retirement age starting from the listed pension age on the pension overview with associated retirement benefits. Individuals may also experience time-inconsistent preferences. In the present they can make plans for the future on which they will not follow through. An example from every day life are failed New Years resolutions to quit smoking or why individuals have gym subscriptions when paying per visit is cheaper (DellaVigna and Malmendier 2006).

  3. Teppa and van Rooij (2012) show the relevance of standard options for hypothetical retirement decisions for the Netherlands.

  4. To my knowledge, studies that evaluate the statutory retirement age increase in the first pillar ex post for the Netherlands are not available. This is probably related to the fact that this statutory retirement age started to increase quite recently (2013) by a little amount (1 month). Somewhat related for the second pillar in the Netherlands is Euwals et al. (2010) who study the effect of a transformation towards actuarial neutral early retirement schemes and an increase in early retirement ages by making use of variation in pension ages of different pension funds. They find that this policy reform led employees to postpone retirement and that the effect of the substitution effect is more important than the income effect (i.e. the increase in early retirement age).

  5. They discuss the possible relevance of reference points, defaults and social norms for the retirement age.

  6. With the start of the new coalition government later that year (Rutte-Asscher, autumn 2012) the statutory retirement age of 67 was announced to be reached in 2021. This faster increase in the statutory retirement age met parliamentary approval in late 2014 in the Lower House and early 2015 in the Upper House.

  7. Households without an internet connection are provided with an easy-to-use computer and internet connection to ensure the sample is representative.

  8. Every respondent faces the same substitution effects as all respondents receive 7 % points less or more retirement benefits for the remainder of the lifetime, depending on the choice for their retirement age. The income levels at the various age anchors are constructed in such a way that all respondents face the same income levels at the various ages. For instance, all respondents have the possibility to retire at 65 years for 65 % of average gross income.

  9. For instance, Keren (2012) finds the relevance of the ordering of answer categories in surveys.

  10. The latent variable equation, however, can also be directly estimated with the observed retirement age answer \(R_{framing,i} \) (ranging from 60 to 76) as a cardinal dependent variable in a linear model (see the working paper version for details: Vermeer 2014).

  11. We find similar results for respondents that are retired and those that are above 65 years of age.

  12. For the age effect we split the sample younger and older than 45 years of age. The reason for making the distinction at this age is to maintain a large enough subsample for the young.

  13. For the details the reader is referred to the working paper version (Vermeer 2014).

  14. Kooreman (2000) examines the labeling effect of child benefits in the Netherlands. Parents tend to spend a larger fraction of child benefits on children’s clothing relative to other income sources as they are of the opinion that child benefits should be spend on children’s good and thus set a benchmark.

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Authors and Affiliations

  1. Dutch Ministry of Finance, Netspar, The Hague, The Netherlands

    Niels Vermeer

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  1. Niels Vermeer
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Correspondence to Niels Vermeer.

Additional information

The author would like to thank Rob Alessie, Giovanni Mastrobuoni, Jan van Ours, Mitzi Perez Padilla, Arthur van Soest, Adriaan Soetevent and Daniel van Vuuren and two anonymous referees for valuable comments. Additionally, the author would like to thank Mauro Mastrogiacomo, Maarten van Rooij, Arthur van Soest and Daniel van Vuuren for fruitful discussions in designing the survey and CentERdata for excellent support in implementing the survey. The author is grateful to Netspar for research funding and to Netherlands Bureau for Economic Policy Analysis (CPB), De Nederlandsche Bank (DNB) and Netspar for financing data collection. The research was mainly done, while the author worked at the CPB and Tilburg University. Views expressed are those of the author only and do not necessarily reflect the official position of the Dutch Ministry of Finance or the CPB.

Appendices

Appendix 1: Descriptive statistics

See Table 3.

Table 3 Descriptive statistics of the (estimation) sample and CentER panel
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Appendix 2: Full results

See Tables 4 and 5.

Table 4 Study into the effect of the age anchor on the expected retirement age (complete Table 1)
Full size table
Table 5 Effect of age anchors on the individual expected retirement age of female respondents broken down in different categories based on background characteristics (complete Table 2)
Full size table

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Vermeer, N. Age Anchors and the Expected Retirement Age: An Experimental Study. De Economist 164, 255–279 (2016). https://doi.org/10.1007/s10645-016-9276-1

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