Working Paper

Why Forcing People to Save for Retirement may Backfire

Monika Bütler, Olivia Huguenin, Federica Teppa
CESifo, Munich, 2005

CESifo Working Paper No. 1458

If individuals are unable or unwilling to borrow, a higher than desired second pillar pension capital may induce people to retire earlier than they would have in the absence of such a scheme. Individuals thus leave the workforce as soon as the retirement income is deemed sufficient and the pension plan avails withdrawal of benefits. We provide evidence using individual data from a selection of Swiss pension funds, allowing us to perfectly control for pension scheme details. Our findings suggest that affordability is a key determinant in the retirement decisions. The higher the accumulated pension capital, the earlier individuals tend to leave the workforce.

Keywords: occupational pension, retirement decision, duration models