How Older People Choose : Income Tests for Working Pensioners and Reduced Pension for Early Withdrawals

Abstract

Using JILPT survey data on the livelihood and employment situations of persons in their 60s, we investigate the primary determinants of early receipt of pension benefits as well as the disincentive effects on labor supply resulting from reductions in wages upon re-employment and from the income testing of wage earners who concurrently receive pensions. The main findings are : first, the employment rate decreases due to income tests by 11％ for men aged 62-64 and 23％ for women aged 60-61. However, we cannot confirm any effects of the income tests on the labor supply of people aged 65-69. Second, reductions in wages upon re-employment are also large, and reduce the labor supply of men aged 60-69 by 10％. Third, the rate of early receipt of pension benefits is 8％ higher for men who are in poor health and 14％ higher for those who are unemployed. The policy implication is that if unjustified wage reductions are improved, the result could be disincentive effects of income tests for people aged 65-69. As long as early pension benefits are utilized by the unemployed elderly for income security, then any revision that reduces rates for early pension withdrawals should be carefully considered given the risk of aggravating poverty.