An empirical analysis of retirement behaviour in Spain: partial versus full retirement

Isabel Cairó-Blanco

doi:10.1007/s13209-009-0009-4

Abstract

Abstract In several developed countries, the ageing process of the population may pose fiscal risks to the PAYG systems of public pensions. This paper studies the determinants of two forms of accessing retirement in Spain, either partial or full retirement. Our goal is to identify if social security legislation influences the choice between these two alternative paths. Using a newly released data set we estimate a multinomial logit duration model including different measures capturing the economic incentives embedded in the social security system. Our results show that social security incentives determine individual retirement decisions. Besides, partial retirement legislation modifies the selection of retirement routes and affects the age of retirement moving it to an earlier date.

Highlights

Several developed countries may face fiscal risks stemming from the lack of financial sustainability of their pay-as-you-go (PAYG) public pension systems
The dependence of the hazard rate on the time spent in a situation of non-retirement is captured through duration dummies, through duration dummies interacted with a dummy variable indicating at each duration if the individual achieved the minimum period of contribution and through the interaction of the explanatory variables with the logarithm of the duration to account for possible different effects of independent variables at different ages
We chose not to restrict the analysis to people who satisfy the minimum period of contributions at the age of 60, for example, we control for the satisfaction of this requirement through dummy variables

Summary

Introduction

Several developed countries may face fiscal risks stemming from the lack of financial sustainability of their pay-as-you-go (PAYG) public pension systems. Two major trends are behind this, the ageing process of the population—due to the SERIEs (2010) 1:325–356 increase in life expectancy at birth and the decline in fertility rates—and the shortening of professional lifes, driven by the increase in early retirement All these elements have implications for the evolution of the labour force structure and on the dependency ratio which is a key determinant to the viability of PAYG systems—such as the spanish one. Gruber and Wise (1999), for the case of Spain, find evidence that the social security legislation generates strong incentives to retire early and the main inducement comes from the generous mechanism determining the minimum pension, specially for low earners. It is hoped that the nonapplicability of reduction coefficients in case of partial retirement before the age of 65 is a potential source of making this exit route a dominant strategy against early retirement, at least at an early age

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