Page 25 - IDEA Study 7 2015 Working Beyond Pensionable Age

income by 0.4 % of the assessment base. In the following graphs, we assume that old age pensioners are working and simultaneously collecting their full old age pension income.7 Graph 12 shows that the pensioners' full participation tax rate do not significantly differs from full participation tax rate of prime age individuals. Women drawing old age pension face participation tax rate, which is on average higher by 3 percentage points. The difference between retired men and prime age men is lower than 1 percentage point on average. Therefore, full pensioners face comparable, slightly lower, institutional incentives to work than prime age individuals. Full pensioners' institutional incentives to work at least do not offset their temptation to leave labour market caused by guaranteed unconditional income. In case of women, institutional incentives to work even increase their temptation to leave labour market, because women start to face higher effective tax burden, when they start to collect old-age pension.8 Individuals eligible for early retirement do not face any significantly higher full participation tax rate. The difference between their net and full participation tax rates is caused by the permanent reduction in their old age pension income as a result of retiring early: the value of their early old age pension, which is incorporated in the net participation tax rate, is compensated by a permanent reduction in their old age pension. This compensation is not included in net participation tax rate, but is counted in the full participation tax rate. 7 In reality, individuals who are above retirement age and are working can choose from 3 alternatives: i) they do not receive old age pension income while employed, but their bonus for being in employment is high, ii) they receive half their old age pension income while employed and their bonus for being in employment is medium, or iii) they receive the full old age pension income while employed but their bonus for being in employment is very low. 8 The opposite conclusion could be drawn if we were to assume that working pensioners did not collect their old age pension while working. However, majority of working pensioners do collect their old age pension, and their institutional incentives to work are therefore lower than the institutional incentives for prime age individuals to work. 23