Page 10 - IDEA Study 7 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.

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