Page 27 - IDEA Study 7 2015 Working Beyond Pensionable Age

the connection between early retirement and a reduced old age pension in the long term, and this effect is not included in the net participation tax rate. 4. Public revenues from older people's work The timing of retirement and older workers' exit from the labour market can substantially affect public revenues and costs. Higher employment rates among the elderly increase the wage bill (sum of incomes), which directly increases the amount of tax, health care and social security contributions collected. Higher income levels among the elderly influence further public revenues, for example revenues from indirect taxes, and also decrease the poverty rate in this age group, which could decrease the volume of social benefits needed to be paid out, for example as aid in material need. In certain situations, postponing retirement and exit from the labour market may also decrease old age pension system costs. Therefore, providing incentives for the elderly to work could positively affect not only pension system revenues, but also several other types of public revenues. According to the Survey of income and labour conditions 2012 and the Taxben microsimulation model, the total public direct revenues (consisting of income tax, health care and social security contributions) collected from working individuals decreases steadily with age between 30 and 55 years of age. However, there is a sharp decline when cohort members start to be eligible for early and regular retirement. This decrease in the total public revenues is caused by a decrease in the employment rate, as depicted in graph 13. Changes in the monthly wage or cohort size play only a minor role. The decrease in the employment rate is, as explained above, mainly caused by voluntary retirement and exit from the labour market. Retirement also influences the costs of the pension system. Graph 13: Total public revenues, pension costs and employment Source: SILC 2012 for the Czech Republic, TAXBEN, own computations 25