Income Security Programmes and Retirement Behaviour in Ireland

Abstract

This paper gives a first-time assessment of the interaction between income security programmes (public and private) and the labour force behaviour of older people in Ireland. Workers close to retirement age face a trade-off between earnings from continued work and benefit payments from income security programmes (public and private). Using the methodology portrayed in Gruber and Wise (1999), we simulate the long-term payoffs arising from these programmes, i.e. income security wealth, its accrual, and the tax on work for stylised cases in Ireland. We find that income security programmes in Ireland are an important feature of the opportunity set for older workers planning their retirement. Our results highlight the important variation in the Irish retirement system and hence it is difficult to draw general conclusions. Nonetheless, our results are innovative and an original contribution to pension policy in Ireland. Half the workforce depends on public old-age income provision only and we find that this system embeds important financial signals for early retirement. We find that people depending on public state pension only have incentives to retire, especially for low earners. For people who also have an occupational pension, the incentive to retire early is much stronger.