The effective retirement age a decade after the increase in the retirement age

A section from the upcoming Bank of Israel Annual Report for 2018:

Full section (Hebrew)

  • The average effective retirement age, the age at which workers aged 50 and over leave the labor force, has increased over the years.  The rise in the statutory retirement age between 2004 and 2009 contributed to the increase among both men and women, at all levels of schooling.
  •  In recent years, there have been signs that the upward trend of the effective retirement age is coming to a halt among men (at all levels of schooling) and women (with post-secondary education), and this may show that the effect of increase in the retirement age has been maximized in these groups.
  •  Due to the marked difference between the retirement ages of men and women in Israel, and due to the fact that the difference is reflected in the effective retirement age as well, an additional increase in the statutory retirement age for women may contributed to increased pension savings for women, and to their increased financial well-being upon retirement.

 

Life expectancy in Israel has increased rapidly in recent years, but society continues to age.  The aging process, including the projection that it will intensify in the coming years, is expected to have a significant impact on the economy and on society, inter alia by increasing fiscal expenses—on old-age pensions and survivor’s benefits, long-term care payments, healthcare costs, and social services used mostly by the elderly population.

 

In order to prepare for this process, the Israeli government has acted over the past two decades to define the fiscal risk in respect of future support of the elderly population, and in order to increase employment at older ages and private pension savings.  As part of this, the retirement age (the age of conditional eligibility for old-age pension[1] and the age of eligibility for employment pension in the old pension funds) was increased.

 

Against this background, we examine the developments of the “effective retirement age”—the average age at which workers actually leave the labor force.  This figure weights the changes in the participation rates of various age groups, and enables us to assess the dynamic created at retirement age over time.  The link between the effective retirement age and the statutory retirement age shows whether policy can affect individuals’ decisions on when to retire and the elasticity of the decision relative to future government policy.

 

An analysis of the effective retirement age using three different methods shows that the increase in the retirement age between 2004 and 2009 had a marked effect on the effective retirement age.  The impact is noticeable among women and men, at all levels of schooling.  The findings of the analysis confirm that the statutory retirement age serves as an indication of the timing of actual retirement.  Women can continue working after the statutory retirement age, in order to accumulate additional pension entitlement and increase their income from labor.  Many actually do so, frequently at part-time positions, but the main actual retirement age for many is the age where the law sets out that they can maximize their rights.


Due to the significant difference in Israel between the retirement ages of men and women, and due to the fact that this difference is reflected in the effective retirement age as well, a further increase of the statutory retirement age could contribute to increased pension savings for women, and to increased financial well-being upon retirement.

 



[1] At this age, the eligibility for old-age pension from the National Insurance Institute, the first layer of pension, depends on household income.  In parallel, the age of absolute eligibility for women was raised to 70, and from that age, both women and men in Israel are entitled to an old-age pension regardless of income.

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