Assessing the effects of early retirement programs

Abstract

We investigate induced retirement effects of the Norwegian early retirement program "AFP" and emphasize effects caused by relocations of some individuals from disability pension to AFP. Our theoretical model predicts that AFP unambigously induces more early retirement. The substitution effect towards early retirement is strongest for low income individuals. Using a longitudinal sample, we demonstrate that i) economic incentives influence the retirement decision, ii) there is a significant net induced retirement effect and the magnitude is inversely related to income, iii) approximately 28 and 8 per cent of the AFP pensioners would otherwise have been disabled or unemployed.