RETIREMENT, PENSIONS, AND AGEING

We study the effects of demographic shocks and changes in the pension system on themacroeconomic performance of an advanced small open economy. An overlappinggenerationsmodel is constructed which includes a realistic description of the mortalityprocess. Individual agents choose their optimal retirement age, taking into account the timeandage profiles of wages, taxes, and the public pension system. The early retirementprovision in most pension systems acts as a trap, inducing most workers to retire well beforethe normal retirement age. Simulations show that pension reform must be drastic for it to haveany effects on the retirement behaviour of workers.