Partial Retirement: Effects on Employment and Implications for Government Budgets

The demographic change is posing many challenges for government budgets. In the face of a shrinking work force, keeping the number of workers and thus pension contributors at the highest possible level is a key economic policy goal. This could be achieved if people retire from the work force later in life. Partial retirement, the option to work part-time while drawing a pension before reaching the normal retirement age, could create the necessary conditions for reaching this goal. The impact of partial retirement on employment will be simulated below. The results show that unrestricted access to partial retirement can lead to an increase in employment volume and generate positive fiscal effects. The effects on employment are especially positive when the entry age for partial retirement coincides with the early retirement age of 63. Flexible retirement, which came into effect in 2017, allows people to receive a partial pension payout before the normal retirement age while still working. However, the computation behind the amount of pension payouts during flexible retirement is very complex. In addition, the limit to pension payouts in flexible retirement could be considered too strict. This negatively affects the attractiveness of the flexible retirement option. Furthermore, work hours can only be reduced in the case of flexible retirement if the employer agrees. If an evaluation of flexible retirement shows that few people make use of it, policymakers would have to simplify the rules regarding additional income and consider a statutory right to partial retirement before the normal retirement age, with possible exceptions for small businesses.