The Impact of Age Pension Eligibility Age on Retirement and Program Dependence: Evidence from an Australian Experiment

Population aging poses a challenge to the fiscal sustainability of social security systems around the world. As Baby-boomer generations approach retirement, governments have begun reforming key parameters of the social security systems. However, the behavioural and welfare impacts of many reforms are not well understood in part due to the di culty of isolating exogenous variation in program parameters. In this paper we study the 1993 Australian Age Pension reform which increased the eligibility age for women to access social security benefits, which represented a decline in the social security wealth of the a ected cohorts. We find economically significant responses to the program reform. An increase in the eligibility age of 1 year induced a decline in the probability of retirement by approximately 8 percent. In addition, we find that the Age Pension reform induced significant “program substitution.” The rise in the Age Pension eligibility age had an unintended consequence of increasing enrolment in other social insurance programs, particularly the Disability Support Pension, which e ectively functioned as an alternative income source for retirement. JEL classifications: D91, I38, J26