samlet årgang - Økonomisk Institut - Københavns Universitet

Nationaløkonomisk Tidsskrift 143 (2005): 168-188
The Effect of the ’92-reform of the
Voluntary Early Retirement Pension
Program on Retirement Age
– A Natural Experiment
Mona Larsen
The Danish National Institute of Social Research, E-mail: ml@sfi.dk
SUMMARY: This paper examines the effect on the retirement age of a change in the
popular Danish early retirement program, known as the Voluntary Early Retirement
Pension (VERP) or »efterløn«. In order to reduce early retirement through VERP, the
government changed the program in 1992 by increasing the incentives to delay retirement
until age 63. To study the effect of this change on retirement outcomes, a natural
experiment based on longitudinal register data covering two percent of the population
for the period 1980-1998 is conducted. The results suggest that the retirement response
to the 1992 changes was relatively small.
1. Introduction
Early retirement schemes are regarded as crucial pull-factors that make senior workers
retire early, see e.g. Börsch-Supan (2000); Gruber and Wise (1999) and Blöndal
and Scarpetta (1998). What’s more, these schemes are often considered to be generous,
that is, tantamount to large disincentives to continue working after the early retirement
age, see e.g. Bratberg et al. (2004). Conversely, previous international studies indicate
that the retirement response to changes in social security benefits is either limited or
non-existent. According to Krueger and Pischke (1992), there is no evidence that reducing
Social Security benefits slows the trend to earlier retirement. Although, Mitchell
and Fields (1984) show that government practices that alter the rewards for retirement
will influence older workers’ retirement behaviour in predictable ways, their results
This work is part of the research of the Graduate School for Integration, Production and Welfare. Financial
support from the Danish Social Science Research Council is gratefully acknowledged. This work benefited
from comments by Jeffrey Smith, Mette Ejrnæs, Paul Bingley, Peder Pedersen, Nabanita Datta Gupta and
Paul Schou on earlier drafts of this paper. Thanks also to the participants at the IZA Summer School 2003,
the CEBR Conference 2003 in Copenhagen, and the First Meeting with the Strategic Advisory Board of the
Danish National Institute of Social Research 2003 in Korsør and to two anonymous referees for helpful
comments and suggestions. All remaining errors are my own.