Impacts from Delaying Access to Retirement Benefits on Welfare Receipt and Expenditure: Evidence from a Natural Experiment

Abstract

Governments are responding to fiscal pressures associated with ageing populations by increasing the eligibility age for publicly funded retirement benefits. However, recent studies show large resulting increases in the receipt of disability and unemployment benefits, which raises concern that welfare savings are offset by increased inflows into alternative payments. Using administrative data to examine the impacts of female eligibility age increases in Australia, we find little evidence of this. Instead, most of the increase is because the delay mechanically extends the receipt time of people already on alternative payments. The implication is that fiscal savings are not jeopardised by welfare substitution.

Re-examining female labor supply responses to the 1994 Australian pension reform

“…First, women in these cohorts had very low rates of LFP, with many women having left (or never entered) the labor force before age 60. Second, other government payments provided a substitute form of retirement income for many women until they reached the new APA (Atalay & Barrett, 2015;Oguzoglu et al, 2020). 14 Third, the substitution to other payments was particularly strong from single women (Oguzoglu et al, 2020), who are more likely to be financially constrained and faced a larger reduction in income from the retirement pension (due to the higher perperson payment rates for singles).…”

“…Second, other government payments provided a substitute form of retirement income for many women until they reached the new APA (Atalay & Barrett, 2015;Oguzoglu et al, 2020). 14 Third, the substitution to other payments was particularly strong from single women (Oguzoglu et al, 2020), who are more likely to be financially constrained and faced a larger reduction in income from the retirement pension (due to the higher perperson payment rates for singles). Fourth, the Age Pension is unavailable to many older women due to the means test; Oguzoglu et al's (2020) estimates imply that the reform had no effect on Age Pension receipt for 48.1% of women.…”

“…In the final part of the paper, I use the replication sample to re-estimate the effects of the reform on female labor force participation. I follow the empirical strategy of several recent studies examining phased increases in pension-eligibility ages (Cribb et al, 2016;Oguzoglu et al, 2020;Staubli & Zweimüller, 2013). This approach differs from Atalay and Barrett's (2015) approach by directly controlling for the trend in female participation rates across cohorts.…”

“…For example, many Australians receive other government payments before they reach the APA. Oguzoglu et al (2020) show that, depending on the cohort, around 30-45% of women receive a regular payment before they reach the APA, with the most common payment being the Disability Support Pension. Like the Age Pension, other payments are noncontributory and means tested, and many have the same payment rates.…”

“…These payments have additional eligibility criteria but no age conditions. Typically, recipients of other payments are transferred onto the Age Pension at the APA (Oguzoglu et al, 2020). Australians can also fund their retirement privately through voluntary savings and a mandatory scheme called superannuation, in which employers make contributions to their employees' private retirement accounts.…”