samlet årgang - Økonomisk Institut - Københavns Universitet

THE EFFECT OF THE ’92-REFORM OF THE VERP ON RETIREMENT AGE 173
rence was twice as big at age 66. For age 64 retirement, post benefits were the same at
age 64 and 65, while at age 66, the gap was around 11,000-13,000 DKK per year.
However, irrespective of retirement age, if previous earnings were equal to or below
118,244 DKK (corresponding to 80 percent of the ceiling for VERP benefits), VERP
benefits were the same before and after the reform.
3. Public Employee Pension (PEP, tjenestemandspension)
PEP is available for public servants who are state-employed or employed in the public
school system, the national church, or the Danish Parliament. A public servant is
entitled to PEP from the age of 60, and retirement is mandatory at the age of 70 unless
lower age limits for the job in question are specified. Furthermore, to receive PEP, at
least 10 years of service is required. 12 PEP is the only Danish public sector program
that ties a worker’s benefits to their past record, see e.g. Bingley et al. (2003), that is,
the programs are actuarially adjusted, as there is a reduction in the benefit amount for
retirement before age 67. 13 The reduction depends on the retirement age and the number
of »pension years« accumulated at the point of retirement. 14 »Pension years« refer
to the number of years that a public servant has been employed full-time in public
service from the age of twenty-five. The number of pension years cannot exceed 37.
Instead of receiving old age pensions at age 67, PEP recipients continue to receive
PEP for the rest of their lives.
People entitled to PEP are used as the comparison group to people entitled to VERP.
First, these individuals are not affected by the change in the VERP policy in 1992.
Second, it seems reasonable to assume that the composition of the group of individuals
entitled to PEP is exogenous. Although people could have been jumping between
VERP and PEP, it is unlikely that the composition of the two groups changed due to
the policy changes in 1992 because rules dictate that eligibility to VERP and PEP
respectively is a function of a long labour market history going back in time. Another
objection could be that the comparison group is not pure in the sense that, in addition
to people eligible for PEP, other public employees are also included in this group.
However, the composition of the comparison group is fairly stable over time (see
Table A.1 in the Appendix). Consequently, this group in its entirety seems to be a
suitable comparison group.
4. Data
The data used are obtained from a Danish longitudinal register dataset created for
12. However, particular rules apply to public servants with at least three years of service who leave their job
before the early retirement age.
13. After 1 July 1999, this was changed to age 65 for people born after 1 July 1939. If the mandatory retirement
age is lower than 67 (65), there is a reduction in benefit amount for retirement before this age.
14. After 1 January 1994, the maximum benefit was 57 percent of the wage when retiring.