samlet årgang - Økonomisk Institut - Københavns Universitet

THE EFFECT OF THE ’92-REFORM OF THE VERP ON RETIREMENT AGE 169
indicate a relatively small response. In general, Mitchell and Fields find that rather large
changes in policy variables such as taxes or benefits would be required to elicit substantial
changes in retirement ages. Similarly, Börsch-Supan (2000) finds that introducing
an actuarially fair benefit formula induces a shift of the cumulative distribution of retirement
age to the right. The largest increase is found for very early retirement. However,
calculations on the basis of Börsch-Supan (2000, Figure 8) show that the marginal
effects of introducing such a benefit formula are limited. The average retirement
age only rises by 0.45 years. 1
The response to changes in social security benefits has also been examined in the
Danish context. Danø et al. (2000) have modelled the main elements of the Voluntary
Early Retirement Pension (VERP, efterløn) reform in 1999 in a quantitative study to
simulate the effects of the policy changes. They show that the reform increases the
average retirement age. The effects differ considerably according to different levels of
education and income and the effect is larger for women than for men. Christensen and
Datta Gupta (2000) use micro data on couples to simulate the effect of two different
types of pension reforms. They find that delaying VERP eligibility from 60 to 62 leads
to a greater increase in the average retirement age (0.6 years for husbands and 0.75
years for wives) than a reduction in benefits (0.22 years for husbands and 0.65 years
for wives). Finally, Bingley et al. (2003) show that the provisions of the social security
system play an important role in determining retirement behaviour in Denmark.
Among other things, they simulate the effect of raising the eligibility age of all early
retirement programs as well raising the normal retirement age by three years. They
find quite a large delaying impact of this three-year reform on the retirement of both
men and women.
The focus in this paper is on the effect of changes in the VERP program, the most
popular early retirement scheme in Denmark, 2 on the average retirement age. When the
program was introduced in 1979, the intention was to offer some form of early retirement
for workers who were worn-out as a result of a physically or psychologically
demanding working-life. However, today the program is widely used even among relatively
healthy older workers. To reduce early retirement through VERP, this program
was changed in 1992 and again in 1999. Although the effect of the 1999 changes is of
current interest in Denmark, this paper focuses on the effect of the 1992 changes because
register data from more years are available. In 1992, the incentives to delay retirement
until at least the age of 63 were increased. Before 1 March 1992, VERP benefits
were equivalent to unemployment benefits for the first two and a half years; after
1. I owe this point to Nelissen (2002).
2. In 2001, almost 160,000 individuals received VERP benefits, see Department of Unemployment Insurance
(2001). That is, more than 40 percent of the 60-66-year-olds.