The Incentive Effects of Minimum Pensions: extended version

The minimum pension program is one of the key welfare programs in many developing and developed countries and a key influence in retirement of low income workers or workers with intermittent working careers. The main purpose of minimum benefits programs is to guarantee a minimum standard of living after retirement. In general minimum contributory pensions that are only made available after the normal retirement age have little (but size- able) incentives effect in at least low incomer workers. Alternatively minimum contributory benefits made available at the early retirement age can generate substantial incentive effects on transitions to retirement of employed and unemployed workers. The importance of this effect critically depends upon both the eligibility conditions and the generosity of the mini- mum pension, that is, in the relationship between the guaranteed minimum pension and the average or the minimum wage.