Dissertation_Paula Aleksandrowicz_12 ... - Jacobs University

2.3. Explanations at Individual Level
The individual decision to retire has been approached from the labour supply- or
protection-orientated perspective (pull factors) or from the labour demand or productionorientated
perspective (push factors).
The pull thesis has the longest theoretical and empirical tradition and states that the
institutional levers which induce workers to choose early retirement can be altered. It
focuses on the incentives and disincentives within the statutory pension system. Incentives
for an early retirement are a flexible retirement age without actuarial deductions for early
take-up, an ´implicit tax´ on continued employment (meaning that additional times of work
are not translated into correspondingly higher benefits), reduced opportunities for
combining gainful employment and benefit receipt, and generous unemployment benefits
and disability pensions which can be received until retirement age.
Decisions within the pull model are therefore clearly economic in nature and can be
approached with the life cycle theory or with the hypothesis of securing the standard of
living (Dinkel 1988). According to the first theory, workers act as to maximise the trade-off
between consumption and income during life. They make informed choices about how long
to save for one´s old age given their presumed life expectancy, their further career
advancement and the interest rate on savings. Workers opt for early retirement if their oldage
income will be reduced by less than actuarially neutral deductions. In case of exactly
actuarially neutral deductions, the worker would be indifferent as to the timing of early
retirement, claims the life cycle theory.
The pull thesis is represented by Blöndal/Scarpetta (1999), Gruber/Wise (1999) and
Duval (2004). In the opinion of Gruber and Wise (1999: 8-9) – who argue in line with the
life cycle theory – an individual chooses to stop working if the tax penalty on continued
work past reaching the eligible age for social security benefits is higher then the expected
income gains. The larger the adjustment for the delay in receiving benefits, the larger the
inducement to continue working. It is Gruber´s and Wise´s merit to have compared those
´implicit taxes on work´ across several countries. They came to the conclusion that tax rates
on continued work are universally imposed (Gruber/Wise 1999: 30; they have however not
included CEEC in the analysis). The lack of an appropriate adjustment of the future pension
level to the age of exit also constitutes an incentive to retire early. The pension deductions
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