Earnings test, non-actuarial adjustments and flexible retirement | Munich Center for the Economics of Aging - MEA

Publication Series of the MPI for Social Policy

Earnings test, non-actuarial adjustments and flexible retirement


In response to the challenges of increasing longevity, many countries have introduced “flexibility reforms” for their public pension systems. A key measure of these reforms is the abolishment of earnings tests. It is claimed that these reforms increase labor supply and therefore the financial sustainability of pension systems. We build a simulation model to show that abolishing an earnings test may indeed create more labor supply but simultaneously reduce the average claiming age when adjustments remain less than actuarial, as is the case in most European pension systems. Flexibility reforms may therefore worsen rather than improve the sustainability of public pension systems.

Publication Details

Axel Börsch-Supan

Klaus Härtl


Duarte Nuno Semedo Leite

S. 78 - 83
Economics Letters