The role of pension knowledge in labour supply decisions
Evidence from Europe
Many countries have recently increased retirement ages. The central question is, do individuals know about these new pension rules? And do they adjust their pension expectations and labor market behavior accordingly? In this study, we exploit time as well as cross-country variation in pension regulations in seven European countries to show that individuals have inaccurate knowledge of pension rules and that the effect of pension reforms on individuals’ labor supply decisions is driven by individuals with a good knowledge of such reforms. This is the first study able to separate information gathering from labor supply decision making, thus providing a causal link between knowledge of pension rules and individuals’ labor supply behavior. Our results have important policy implications, as they suggest that informing individuals – possibly quite a cheap policy – could considerably improve the effectiveness of pension reforms.
Keywords: Expectations, Retirement age, Pension Reforms, SHARE
JEL Classification: J26, H55