Retirement on a Pension in the Public Sector in Israel since the 1980s

22/02/2006 |  Mazar Yuval
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Retirement on a Pension in the Public Sector in Israel since the 1980s
Yuval Mazar
This paper presents the results of empirical research about retirement on a pension in the public sector in Israel since the 1980s. The research is relevant in the light of the problem of the reduction in the rate of participation of the older member of the population in the labor force in the OECD countries, to which they are seeking a solution, and also in the light of the reforms that have taken place in Israel in this area in the last few years. These include the transition to a funded pension based on pension units that accumulate year by year, the raising of the statutory retirement age for men and women, and the raising the age of eligibility for benefits from the National Insurance Institute.
Panel data and special cross-section analysis of data on those working and pensioners in the public sector over the last few years made it possible to monitor developments in this field. A dynamic model of the decision to retire on a pension was adapted to retirement policy in Israel, and enabled the distribution of the ages of retirement to be estimated. The research found that the incidence of early retirement was common mainly among the group of those earning relatively low wages and without higher education, and that the average retirement age of women was lower than that of men.
The study estimates employees' average negative benefit from work. It seems that with regard to this parameter there is a difference between retirees from the top and the bottom wage quintiles, and differences between men and women retirees. In line with findings around the world, it was found that on retirement women are prepared to waive a larger proportion of their wage than are men. A new finding obtained from this study was that retirees from the top wage quintile are prepared to waive more than those in the bottom quintile.
The research paid special attention to early retirement, mainly to those veteran employees given incentives to retire early in the form of special retirement grants. The model describes the financial waste involved in campaigns to encourage early retirement and the economic inefficiency that derives from them.
The model views the sharp reduction in the average age of retirement in the last few years as a break in the trend evident in the prior period and predicts the effects of the reforms of 1995 and 2004 on the distribution of the retirement age in the next few years. According to the simulation the average retirement age of men will rise, and their utility on retirement will not be adversely affected by the reform, but women's retirement age is not expected to rise, and their utility on retirement may be harmed.
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