Do Individual Retirement Account Systems Postpone Retirement?: Evidence from Chile

Published: 2004
Project ID: UM04-07


Postponing retirement becomes an increasingly important channel to sustain incomes and maintain social security financial solvency, given population aging. Traditional defined benefit systems encourage early retirement. In contrast, the tight link between contributions and benefits in defined contribution systems likely leads workers to postpone their pension age and continue working after withdrawals begin. The experience of Chile offers an opportunity to test whether the change in incentives brought about by pension system reform has indeed produced changes in behavior. Using data from 1957 to 2002, we estimate the impact of system’s characteristics on the hazard of 1) dropping out of the labor force and 2) joining the pensioners’ population.