Page 7 - IDEA Study 7 Working Beyond Pensionable Age

Summary

 The Czech Republic has reacted to its deteriorating demographic situation mainly
by increasing the statutory retirement age. This raises the ratio of workers to
pensioners because healthy individuals are used to working until they reach the
statutory retirement age. This policy does not, however, help to increase the low
level of employment among Czech pensioners.

 The vast majority of pensioners are voluntarily inactive. Seventy to eighty percent of
retirees report that they left the labour market voluntarily. The majority did not
suffer from health problems or difficulty finding a job at the time of retirement.
Moreover, an increase in the share of individuals limited to work during several
years before statutory retirement age cannot explain the sudden exit of almost
whole cohorts to inactivity.

 Institutional incentives for the pensioners to work, via the tax, benefit or pension
systems could contribute to an increase in employment among pensioners because
the vast majority of pensioners are able to work, but these institutions do not
currently provide such incentives, which would offset pensioners' increased
temptation to leave labour market (caused by guaranteed unconditional income -
old age pension). Tax, benefit or pension system changes could increase pensioners'
net working income, which would incentivize them to work.

 In this study, institutional incentives for the elderly to work are quantified by
participation tax rate. All specifications of participation tax rate, which do not take
into account unemployment benefits, show, that institutional incentives for the
elderly to work are not higher compared to incentives for prime age individuals to
work. Moreover, participation tax rates of pensioners used to be even higher
compared to prime age individuals. This was the case in 2013 when working
pensioners, who were receiving an old age pension, could not claim taxpayer tax
credit. Therefore, pensioners' institutional incentives to work cannot offset their
increased temptation to leave labour market.

 A higher level of employment among the elderly is beneficial for the elderly and for
the whole population, because it raises public revenues through an increase in
direct tax, social security and health care contributions and other tax revenues. An
international comparison shows that it is possible to increase employment among
old age pensioners by more than 20 percentage points. According to our simulation,
a 10 percentage point increase in employment, driven by significant institutional
incentives for the elderly to work, would raise public revenue by 0.3 % to 1.5 %.

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