samlet årgang - Økonomisk Institut - Københavns Universitet

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NATIONALØKONOMISK TIDSSKRIFT 2005. NR. 2
Second, by contrast, transition to retirement at age 60-62 and age 65-66 seems not
to have been affected significantly. The results mitigate the conclusion that the change
in the VERP policy did not have any effect. However, the results suggest that the
aggregate effect on the retirement age was rather limited.
7. Concluding remarks
The focus of this paper is on the VERP program, the most popular early retirement
program in Denmark, and on the effect of a 1992 change on retirement age. To reduce
early retirement through VERP, the government increased the incentives for delaying
retirement until age 63.
All in all, results from a natural experiment suggest that the retirement response to
the change in VERP policy was relatively small at least in the short run. Distributions
of retirement age indicate that the changes did not have the intended effect. However,
difference-in-differences estimates that are adjusted for differential trends suggest that
the change, as intended, increased the incentives for retiring at age 63-64. But these
analyses also suggest that the aggregate effect was small since retirement at age 60-62
and at age 65-66 was not affected significantly. Consequently, the retirement age for
people entitled to VERP did not on average increase. However, it cannot be ruled out
that in the longer run, a larger effect might have arisen.
The results are similar to those found in previous international studies, thus confirming
that only rather large policy changes can elicit substantial changes in retirement
ages. The 1992 changes in financial incentives seem to have been too small to significantly
delay retirement, at least in the short run. Another reason for the small effect
might be that there was no stick, only carrots. Although people entitled to VERP got a
»reward« if they delayed retirement until 63, if they retired at age 60-62, the VERP
benefits remained exactly the same as before 1992. Moreover, the carrots were rather
small. If retirement was delayed until 63, the change first set in 2 1 /2 years after the
transition to retirement. In addition, VERP benefits did not increase in absolute terms
after 2 1 /2 years. Instead, the reduction in benefits after 2 1 /2 years, which was in force
for everyone receiving VERP benefits before 1992, was removed for this group.
Therefore, the changes were hardly noticeable in the individual case.
Contrary to the policy aim, the changes to the VERP policy in 1992 might actually
have caused public expenditures to increase as a result of the »no stick, only carrots«
construction of the policy change, if the effect on retirement behaviour was limited,
as the results suggest. If so, the 1992 changes increased the burden on the providers
instead of diminishing it.
The results that this paper presents deviate from those of previous Danish studies.
Presumably, the most important explanation for this difference is that the 1992 changes