Pension age reform and changes in retirement patterns: the case Estonia in the 2000s

Marden Nõmm, Tallinn University
Lauri Leppik, Tallinn University
Allan Puur, Tallinn University

Beginning in the 1990s, governments in developed countries started to take actions to reverse the long-term trends to towards earlier retirement. Although there are good reasons to expect that rising the statutory pension age delays the exit from the labour force and increases employment among older workers, this may not be necessarily the case. In this study, our aim is to investigate the change in retirement pattern in Estonia in 2002–2011 and, particularly, how the increase in statutory pension age has mattered to the take-up of pensions and employment dynamics surrounding the latter. The schedule of the increase — among men, the target age of 63 was reached in 2001 while women will attain it only in 2016 — provides us with a quasi-experimental situation. In addition, the alteration of economic growth and recession allows us cast light on the role of varying macro-economic conditions. The study is based on micro-data from administrative registers and employs descriptive methods. The results suggest that the increase in statutory pension age has significantly reduced the take-up of old-age pensions. We suspected that the postponement of entitlement to normal old-age pension has increased the demand for early retirement but the results did not confirm this assertion. We found that although the increase in employment rates was less extensive among women, the rise in statutory pension age precipitated neither the preterm exit from employment nor the decrease in the propensity to remain employed in post-pensionable age. However, against the backdrop of relatively successful adjustment to the rise in statutory pension age, the results show the expansion in the take-up of incapacity pensions that offer an alternative pathway to early retirement. The paper discusses the plausible factors that may have contributed to these developments.