Pension Incentives and the Pattern of Retirement in the United Kingdom

Richard Blundell, Costas Meghir and Sarah Smith

in Social Security Programs and Retirement around the World

Published by University of Chicago Press

Published in print March 2004 | ISBN: 9780226310183
Published online February 2013 | e-ISBN: 9780226309989 | DOI:
Pension Incentives and the Pattern of Retirement in the United Kingdom

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The United Kingdom has been experiencing a trend toward earlier labor market exits among older, particularly male, workers. The proportion of men aged sixty to sixty-four in employment halved from 1968, when 80 percent were employed, to only a little over 40 percent in 1996. Female employment has not experienced the same downward trend—but this contrasts with rising participation among most other age groups across the same period. This chapter looks at the extent to which these trends might be explained by the financial incentives in the pension system that people faced when making their retirement decisions. In doing so, it focuses not only on the pensions provided by the state, but also on employer-provided pensions and on other state benefits, such as invalidity benefit, all of which have played a crucial role in the United Kingdom. The results show that incentive and pension wealth measures managed to explain the most part of the large amount of early retirement that occurs prior to the normal retirement age. This appears to be due to a combination of the ability for invalidity benefit to act as an early retirement incentive and the significant incentives for early retirement that occur in occupational schemes in the United Kingdom.

Keywords: retirement incentives; male workers; pension system; retirement behavior; state benefits; invalidity benefit

Chapter.  15644 words.  Illustrated.

Subjects: International Economics

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