26 These figures confirm the results found in a recent SAKE/ESPA study<sup>24</sup> . According to this survey, 53 percent of Swiss men and 44 percent of Swiss women retire before the legal retirement age of 65 for men or 62 (since 2005: 64) for women.

Unfortunately, due to the high number of pension funds and the lack of publicly available data on early retirement schemes and take-up rates, there are no representative studies to analyze the issue of early retirement in the second pillar. Consequently, one does not know how the early retirement option performs in terms of MWRs compared to the regular retirement age in general. Moreover, the fraction of funds offering more generous than actuarially fair early retirement options has considerably decreased in the last two years due to the financial constraints faced by most of them.

Bütler, Huguenin and Teppa (2005) try to shed some light on the determinants of the retirement decision other than the impact of social security incentives by analyzing individual data from a non-representative selection of Swiss pension funds. The unique data set of individual retirement decisions used was provided by a number of privately run pension funds, allowing control of all company specific pension plan details.

Note that due to the fact that the second pillar has been mandatory in Switzerland since 1985 (and had been offered by a majority of companies even before that year), differences in accumulated capital at retirement within the same cohort closely mirror differences in lifetime income. Moreover, due to the maturing of the second pillar the average pension capital, and thus the effective replacement rate, has been steadily increasing over the years and now reaches high replacement rates for all income groups. Unlike in other countries, the structure of the second pillar leads to replacement rates that are similar for lower to upper middle class incomes.

Bütler, Huguenin and Teppa (2005) find that the incidence of early retirement has increased considerably over the last decade despite the fact that there were no institutional changes throughout that period. The increase in early retirement is more pronounced for men than for women, and was found to be especially strong in the last few years. It is relatively robust, but differs considerably across pension funds. Due to an increase in the effective replacement rate within Switzerland’s second pillar, more people are now able to accumulate sufficient funds to pay for an early labor market exit than one or two decades ago. But even if one controls for this apparent time trend, wealthier men tend to leave the work force earlier. Low-income workers, on the other hand, often work up to the legal retirement age, even in pension funds in which early retirement packages are generous. In these cases the need to generate income seems to be the only explanation for working until the statutory retirement year. For women, the effect of income on the likelihood of exiting the labor force is also positive, but weaker than for men. Due to differences in mortality rates across income groups, richer individuals thus tend to enjoy a much longer retirement spell than poorer people.

24SAKE / ESPA is a longitudinal (rolling panel) study of the Swiss labor market, but also covers individuals beyond the retirement age.