The Sooner The Better - The Welfare Effects of the Retirement Age Increase Under Various Pension Schemes

We evaluate the welfare and macroeconomic effects of increasing the retirement age in the context of population aging. In an overlapping generations framework we simulate the increase of the retirement age by seven years under different pension systems (defined benefit, notionally defined contribution and fully funded). We show that raising the retirement wage is universally welfare enhancing for all living and future cohorts, regardless of the pension system. Quantitatively, this policy intervention is able to counterweight the adverse macroeconomic consequences of aging. We test the validity of our findings in a population with lower pace of aging due to higher fertility. Finally, we show scope for further welfare gains if productivity is relatively high at old ages.