NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Gemma C. Tetlow

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Working Papers

February 2014Effect of Pensions and Disability Benefits on Retirement in the UK
with James Banks, Carl Emmerson: w19907
This paper examines to what extent differences in employment rates across those in better and worse health in the UK can be explained by the availability of publicly-funded disability insurance and the financial incentives provided by other retirement income schemes. Using an option value approach, we find that individuals’ labor force participation is affected by financial incentives. A one standard deviation change in the option value is estimated to reduce the likelihood of an individual leaving the labor market in the next year by between 2.7 and 3.1 percentage points, relative to an average exit probability of 9.4%. This suggests the variation in financial incentives across different individuals could explain a significant proportion of retirements. However, we find no evidence that i...

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