A theory of reverse retirement

Abstract

The retirement system is usually regarded as giving a fair reward for a long working career. However, only workers who have a sufficiently long life benefit from that reward, but not workers who die prematurely. To re‐examine the fairness of retirement systems under unequal lifetime, this paper compares standard retirement (i.e., individuals work before being retired) with—hypothetical—reverse retirement (i.e., individuals are retired before working). We show that, under standard assumptions, an economy with reverse retirement, once in place, converges towards a unique stationary equilibrium. At the normative level, we show that, when labor productivity declines with age, reverse retirement cannot be optimal under the utilitarian criterion (unlike standard retirement), whereas reverse retirement can be optimal under the ex post egalitarian criterion (giving priority to the worst‐off in realized terms). Finally, we show that there exists a set of policy instruments that allow a government to organize a successful transition from standard to reverse retirement.

Differentiating Retirement Age to Compensate for Health and Longevity Inequality?

“…Such a policy would be a way of systematising earlier suggestions that pension reforms aimed at raising the retirement age should make an exception for workers with demanding occupations since health considerations may make it unreasonable to expect them to work longer. They also echo recent work on the fairness of retirement systems under unequal longevity (Ponthière, 2020). Health at an older age and remaining longevity are indeed highly correlated.…”

“…8 But note that when stressing the equality of expected outcomes, we hint at ex-ante egalitarianism (Diamond, 1967). While some of our results about people's health at the moment of their retirement signal the likely importance of ex-post egalitarianism (Fleurbeay et al, 2016;Ponthière, 2020). 9 The ex-ante perspective considers the average outcome (here health and, by extension, longevity) that someone can expect to attain at the moment she retires (given the socio-demographic group she belongs to), while the ex-post standpoint is that of her actual and realised health on the day she retires.…”

Differentiating Retirement Age to Compensate for Health Differences

“…Such a policy would be a way to systematise earlier suggestions that pensions reforms (in particular those aimed a raising the retirement age) should make an exception for workers with demanding occupations, since health considerations may make it unreasonable to expect them to work longer. They also echo recent work on the fairness of retirement systems under unequal lifetime (Ponthiere, 2020); health and residual life expectancy are indeed highly correlated.…”