Should some be left behind in the race to increase the retirement age? Evidence from a life-cycle model pension reform simulation for Sweden.

Sammanfattning: Governments across the world are undertaking retirement age reforms to preserve fiscal sustainability in the face of population aging. However, research suggests that increasing the retirement age often has the unwanted side effect of increased disability insurance claiming, which can offset a big part of the savings realized due to lower spending on retirement benefits. In this thesis, I explore whether it would be optimal for retirement age increase reforms to only target individuals facing low health risk, to avoid triggering a large increase in disability insurance spending. I build a life-cycle labour supply model with an overlapping generations structure calibrated to the Swedish economy and simulate two retirement age increase reforms: a universal one (affecting everyone) and a selective one, where the retirement age is only increased for the low-risk group (college graduates). Comparing their outcomes, I find that the selective reform produces worse results than the universal one from the public finances perspective, if the increased retirement age remains below the age threshold at which individuals are transferred from disability insurance to retirement. However, if the retirement age is increased beyond that, the selective reform results in lower government spending on social benefits in the long run.