Impact of Raising Austria’s Pension Age

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Like the United States, many European countries are concerned about shoring up their pension systems for their aging populations.  In 2000, Austria took action by introducing a series of small increases in the earliest age at which workers can begin receiving their federal pensions.

This reform is gradually phasing out early eligibility entirely. Raising the earliest claiming ages, from 60 to 65 for men and from 55 to 60 for women, will cause them to converge, next year, with the pension program’s standard – or “normal” – retirement ages.

Prior to the reform, workers who had signed up for benefits before their normal retirement age received only mild reductions in their monthly benefits.  The reform, in addition to gradually raising the early retirement age, exacted a larger penalty on the early claimers, increasing the incentive to continue working.

Austria’s pension changes have provided researchers with a unique natural experiment to see how workers reacted to a delay in their eligibility.  A study by economists at the University of Texas at Austin and the Vienna University of Economics and Business, which they will present tomorrow at the NBER Summer Institute, have concluded that the reforms have had a “pronounced” effect.

For each one-year rise in the eligibility age, they found that Austrians affected by the reform delayed the starting date for their pensions by six months and remained in their jobs for nearly five additional months. The results were similar for men and women.

The researchers used data on some 750,000 older workers between ages 53 and 70 in the Austrian Social Security Database.  They compared the retirement behavior of those affected by the reform with people who were already receiving benefits when it went into effect.

Do Austrians’ decisions to significantly delay retirement tell us what older Americans would do if Social Security’s initial eligibility age – 62 – were also raised?

It’s still difficult to say, because the two systems’ mechanics and incentives are not the same. One difference is that Austrian women’s earliest eligibility for benefits – when it rises to age 60 next year – will still be well below Social Security’s, which is 62.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.