Taxation of earned income in addition to pensions and second-earner taxation tend to rapidly increase the implicit tax rate on work with age.<sup>61</sup> Taxation appears particularly important for groups with higher inactivity rates (and thus a larger labor supply reserve), including women and low-skilled workers, and for populations with highly elastic labor supply, which includes many older workers.<sup>62</sup>

**Social welfare systems, including the level and structure of pension benefits as well as unemployment or disability pensions, can further affect incentives to work** . In many countries, formal sector workers enjoy relatively generous early retirement rules, creating incentives to retire early.<sup>63</sup> In East Asia and Pacific countries, retirement ages in national pension schemes are relatively low compared with life expectancy at age of retirement.<sup>64</sup> The design of other social welfare programs also matters. If mature workers are eligible for prolonged unemployment benefits, or if the requirements for job search in unemployment or disability-benefit programs are waived for them, are too lax, or are weakly enforced, alternative pathways to leaving the labor force without jeopardizing retirement benefits open.<sup>65</sup> Such loopholes can hence reduce the impact of pension reforms aimed at increasing retirement ages.<sup>66</sup>

**Pension income, whether through contributory or noncontributory systems, can be an important factor in determining workers’ participation choices in middle-income countries** . Analysis of the impact of the early retirement age in Central Europe and the Western Balkans shows that pension receipts are significantly and negatively associated with labor force participation.<sup>67</sup> In Argentina, widening the eligibility for noncontributory pensions lowered labor force participation rates by 5 percentage points and increased informal work.<sup>68</sup> The South African social pension program has been shown to reduce employment among the elderly.<sup>69</sup> These experiences appear consistent with historical evidence from more advanced economies. The introduction of a social pension from age 70 in the United Kingdom, some 100 years ago, lowered labor force participation rates by 6 percent, even with a very low adequacy of benefits.<sup>70</sup> As systems expand, it is important to make sure that programs remain incentive-compatible.

**Information gaps due to limited financial literacy can also impact retirement choices for those covered by pension systems.** Understanding the expected level of benefits and how that will impact welfare in older age is a prerequisite for making rational labor market decisions. Surveys in Sweden and Ireland show that knowledge of future pension benefits is at best limited, and that the most economically vulnerable groups know the least about their future benefits.<sup>71</sup>

**In addition to rethinking pension systems, flexible work arrangements may be needed to accommodate work preferences that change with age** . There is evidence that mature workers need

> 61 Butrica et al. 2006.

> 62 Meghir and Phillips 2010.

> 63 Bussolo et al. 2015, World Bank 2016.

> 64 World Bank 2016.

> 65 Ahlqvist and Boren 2017 and Kyyrä and Ollikainen 2008.

> 66 Pension reform during recession in Germany resulted in alternative pathways pushed by employers - unemployment and partial retirement (Lorenz et al. 2020).

> 67 Bussolo et al. 2015, Gragnolati et al. 2011.

68 Bosch and Guajardo 2012.

69 Baird et al. 2018. The paper shows that cash transfers in general do not lower aggregate labor force participation, however.

70 Gisecke and Jäger 2021.

> 71 Elinder et al. 2020, Barrett et al. 2015.

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