Page 10 - IDEA Study 7 2015 Working Beyond Pensionable Age

able to work. Together, these instruments increase ratio of workers to pensioners, which help to maintain pension system stable. A higher rate of employment among the elderly not only results in the increase of pension system revenues, but also has a direct positive effect on revenues from direct and indirect taxes, health care contributions, and so on. Furthermore, it may also have a positive impact on the individuals' own financial situation and on their mental health1. This study focuses on employment of the elderly and on institutional incentives for the elderly to work in the Czech Republic. In chapter 2, we present retirement timing in the Czech Republic and investigate the Czechs' reasons for retirement. We show that majority of elderly people leave the labour market when they become eligible for retirement. As the retirement age is rising, people are retiring later. However, the majority of individuals do not continue to work after reaching retirement age. They leave the labour market despite not suffering from health or employment-related problems. We can interpret this as indicating that the country's current regulatory framework provides a sufficient incentive for individuals to work until they reach the statutory retirement age, but fails to incentivize them to continue working thereafter. Therefore, in chapter 3, we quantify the institutional incentives for the elderly to work after reaching retirement age, and compare these with the institutional incentives provided to prime age individuals. In particular, we quantify the magnitude of the incentive to work provided by the direct tax system, the social benefit system and the pension benefit system. In our computations, we utilize a microsimulation tax and benefit model and a microsimulation pension model. Finally, in chapter 4, we quantify the impact of an increase in employment among the elderly on the public budgets. We present the changes in the revenues from direct taxes, health care and social security contributions that would be caused by various changes in the employment of the elderly and by direct taxation of the elderly. 2. Working and non-working elderly in the Czech Republic The majority of healthy2 elderly workers leave the labour market around the statutory retirement age. Graph 1 shows the timing of labour market exit for each gender (probability of transition to inactivity conditional on age and gender) and the proportion of economically inactive men and women in the age around retirement age (inactivity rate conditional on age and gender). Graph 1 shows that more than 90 percent of males and females are economically active four years before reaching the statutory retirement age, but that more than 90 percent of males and females are retired and economically inactive by the time they are 4 years older than the statutory retirement age. In other words, as 1 However, there is mixed empirical evidence of the effects of retirement on mental health. 2 Unless otherwise specified, we consider anyone who is not disabled to be healthy. 8