This paper investigates the welfare effects of two types of pension reforms aimed at addressing challenges due to aging populations. The study uses a framework by Kolsrud et. al (2024), decomposing welfare into consumption smoothing and fiscal externality effects. Norwegian administrative data is used to study the welfare effects of two reforms. The first is a hypothetical budget-neutral reform steepening pension incentives, which rewards late retirees. The second is the 2011 Norwegian old-age pension flexibility reform. We find that the first (hypothetical) reform is regressive. Based on consumption differences, such a reform incurs substantial consumption smoothing costs and results in significant overall welfare costs (0.4–0.5 NOK per 1 NOK transferred), highlighting the negative welfare impact of heavily penalizing early retirement. Conversely, the 2011 Norwegian old-age pension flexibility reform, which lowered the eligibility age (from age 67 to age 62) had a near-zero effect on total labor supply. Quasi-experimental evidence suggests this reform shifted the consumption distribution upwards and resulted in welfare gains, estimated at around NOK 138,000 per affected individual.

Since a couple of decades, the pension policy of member states is a focal point of attention on the European level. The Working Group on Ageing Populations and Sustainability produces the 2024 Ageing Report, which provides long-term projections of the economic and budgetary impact of population ageing at unchanged policy. The SPC Working Group on Pension Adequacy (SPC WGPA) in its Pension Adequacy Report (PAR) assesses the adequacy of pensions in the European Member States. This report includes prospective Theoretical Replacement Rates, which describe how a hypothetical retiree’s pension income in the first year after retirement would compare to their earnings immediately before retirement. In the 2024 PAR, this hypothetical individual is assumed to start his or her career in 2022 and retire in 2062. Prospective values of the key ISG indicators, such as the at-risk of poverty rate or the Gini, are not available. 

Dynamic microsimulation models allow to simulate the behaviour of individuals and households over time. Often but not always, these models do this while aligning to auxiliary information, such as the projections of demographic or macroeconomic models. It was decided in the SPC WG AGE that Belgium, Czechia, Norway and Slovenia would use their dynamic microsimulation models to simulate possible developments of pension adequacy, while taking into account the projections and hypotheses of the 2024 Ageing Report . This report presents the results of this project, and therefore shows for a selection of countries (Belgium, Czechia, Slovenia, and Norway) how the adequacy of pensions would develop given the budgetary costs of ageing set out by the 2024 Ageing Report. 

In this paper we study the so-called early claiming puzzle, i.e. the finding that too many start claiming pensions as soon as possible even though they would benefit financially by delaying. We use a dynamic micro-simulation model (MOSART) to calculate the inter-temporal trade-off each individual faces, and then use their actual choices to illicit their personal discount rate. Thereafter we aim to discuss to what extent this can be used to measure time preferences, after accounting for expected longevity, health and liquidity constraints.

The report analyses the economic and distributive effects of introducing a toiler pension supplement in the National Insurance scheme, based on the private sector model. Chapter 1 outlines the rules, stating that individuals with long careers in physically demanding jobs will receive a pension supplement. Eligibility criteria include a minimum pensionable income of 1 G in the year prior to claiming and an upper income limit for qualification. Chapter 2 details the MOSART model that we utilise for the analysis, which accounts for demographic trends, labour market behaviour, and social security history. 

Chapter 3 presents key findings. The direct cost of the toiler pension is estimated to increase pension expenditure by approximately NOK 0.8 billion annually by 2060 and around 1.8 billion in a scenario where individuals refrain from engaging in labour market activities resulting in the loss of the toiler pension. Stronger behavioural changes, such as workers retiring earlier than planned, could significantly raise costs. 

Chapter 4 explores an alternative approach where the toiler pension supplement is not linked to a fixed age but rather to the age at which an individual qualifies for retirement. This alternative better includes low-income workers and those with disrupted careers—groups with the greatest need for support. The model predicts that this will increase the number of recipients from 100,000 to 190,000 by 2060, with costs rising to NOK 3.4 billion. However, this ensures a more inclusive system that reaches vulnerable workers who would otherwise be excluded.

Chapter 5 concludes that while a toiler pension supplement could be a well-targeted social policy reform, its design has major budgetary implications. The alternative qualification method improves targeting but significantly increases costs. 

The 2011 pension reform introduced the possibility to claim old-age pension from 62 years of age, combined with continued work, without an earnings test. This lead to an increase in the public spending on pensions, and lead to an increasing number of people now claiming pension as early as possible, namely from age 62, despite claiming early leading to perpetually lower benefit levels compared to later claiming. Among 62-year-olds, as many as 1 out of 3 of those who qualify choose to claim pension early. This behavior has consequences for simulations of pensions in the microsimulation model MOSART, which is utilized by Statistics Norway in analyses of the economic sustainability of the pension system. In this report, we describe the characteristics of those who choose early pension withdrawal in combination with continued work, and how the transition probability from work to pension claiming is modelled in MOSART.

The current private sector early retirement program (AFP) exhibits shortcomings in its eligibility criteria for benefit take-up. Specifically, workers who end their careers outside a membership firm in the private sector or whose late-life career has gaps may disqualify from AFP benefits despite being a long-term member through the earlier career. Consequently, reforming the current AFP program in the private sector has been on the agenda for some time. The primary objective is to shift from a qualifying criterion based on the final years of the career to a mapping based on all member years. On the one hand, this would ensure that every member can claim a benefit, despite being a nonmember by the end of the career. On the other hand, this expansion of the program would necessarily increase the costs for both the member firms and the government. In 2021, the Labor Organization (LO) and the Confederation of Norwegian Enterprises (NHO) collaborated to publish a report titled «Utredning av en mulig reformert AFP-ordning i privat sektor» (in English: Investigation of a possible reformed AFP scheme in the private sector) (LO/NHO 2021). The report utilized the MOSART model operated by Statistics Norway. In the present report, commissioned by LO, we have provided additional analyses on the same subject.

The report documents effects from quantitative calculations of a reform of the pension system if the age limits are gradually increased. To this end, we have used the microsimulation model MOSART. Increasing age limits will increase pension expenditures, and this is mainly driven by increased expenditures towards former disability pensioners and paying disability insurance to disabled past the age of 67. However, the results show that increased age limits increase labour supply, and thereby the tax base, which dampens the negative budget effects. Compared to continuing with the current system, but permanently shielding the minimum benefit level from the longevity adjustment, it is strikingly more efficient to also increase the age limits. This is because increased age limits push more workers to earn a higher income pension for themselves, pushing them up from the guarantee pension and minimum pension levels.