September 12, 2016
Guest blog post by Niko Väänänen, Special Advicer for pension systems in other countries, EU at the Finnish Centre for Pensions.
At first glance, the thought of extending working lives by doing less work seems counter-intuitive: how can something be extended by reducing it? However, when analyzing working lives we need to scrap intuition. The lengths of working lives are not predetermined; people constantly make choices that will have an impact on the total length of their working lives. That’s why something can be reduced (transition from full-time to part-time work) and extended (through later retirement) at the same time.
Eurofound’s study Extending working lives through flexible retirement schemes draws on relevant research to meticulously explore different partial retirement schemes in the EU. It presents four case studies. One of them is the Finnish part-time pension scheme that has been in place since 1987. Yours truly was the co-author of the Finnish case study. Our assignment was to investigate the working lives of part-time pensioners and analyze whether they had been extended thanks to part-time retirement.
Do Part-Time Pensioners Work Longer?
For our case study, we compared the length of the working lives of those who took out part-time pension in 2005 at the age of 58 with the working lives of their peers who carried on working. We assessed the length of the working lives of these two groups in 2005 and in 2014.
The data in our report show that, in 2005, the working life of those who transferred to a part-time pension spanned 36 years in median. In 2014, it had grown to 40 years. In contrast, those who continued working had a working life spanning 35 years in 2005 and 39 years in 2014.
Numbers don’t lie: part-time retirement doesn’t seem to extend working lives. The differences in the length of working lives between the two examined groups accumulated before part-time retirement and did not significantly alter after that. As part-time pensioners are working only part-time, the impact on the overall work input is presumably negative.
Let’s not give up quite yet, though. What about the retirement age? Perhaps those on a part-time pension retire later? But no, not even here did we find a difference. People from both groups retired at the same average age of 63.6 years. In other words, when assessing the effective retirement age, there’s no evidence that the working lives of part-time pensioners are extended.
There Is More to It Than Meets the Eye
However, another kind of approach would involve studying some sub-groups, such as people in arduous jobs, people with bad health or people with care duties, and assessing how part-time pensions affect these groups. Some previous studies suggest that, as a targeted measure, the part-time or partial pension may help some groups of people to work longer.
Nevertheless, let’s not forget that our study doesn’t discuss the very important question of productivity, which may be affected positively by the part-time pension. Studies have shown that part-time pensioners are happy people with the arrangement; very few encounter problems. In addition, working lives are changing and it may become more common for the elderly to work part time, especially when supported by structures such as partial retirement.
As for intuition, it seems that our initial hunch proved to be correct this time. Based on our study, we can conclude that, on a general level, working lives were not extended by the part-time pension.
By the way, as of the beginning of 2017, Finland will abolish the current part-time pension scheme. It’ll be replaced by a partial pension that will be totally detached from work. As a result, combining work and retirement will become easier, at the expense of the pension benefit, which will become slightly less generous. My hunch says that the partial pension will grow in popularity. What do you think?
Eurofound’s full report: http://bit.ly/PartialRetirementBlogactiv Team