Parents' life expectancy is influencing their children's retirement decisions.

Research has shown that Finnish citizens are increasingly looking at their life expectancy when making pension decisions. Finland, in conjunction with the 2017 pension reforms, introduced an early partial retirement pension that can be claimed from the age of 61. An earlier study conducted by the Finnish pensions centre had shown that the most common reason for applying for this type of pension is uncertainty about the future and life expectancy. The latest results support this observation.

A recent study now shows something surprising: claiming a partial retirement pension depends on the parents’ life expectancy. The shorter the predicted life expectancies, the more likely people are to apply for a partial retirement pension. Finns seem to estimate their own life expectancy based on the life expectancies of their parents. Individuals whose same-sex parent died at a younger age are more likely to apply for a partial retirement pension than other people. Men have a shorter life expectancy than women and they are also about 50 per cent more likely to apply for this benefit.

Possible effects on pension financing

The results of this study could have important implications for the pension system, as specific decisions about partial retirement will inevitably be reflected in future pension payments.

Pension funding calculations are generally based on average life expectancy. Until now it has always been assumed that people do not make their retirement decisions based on their estimated life expectancy. Therefore, people who live shorter lives will receive fewer pension payments during their lifetime and people who live longer will receive more. This keeps the system in balance. However, if people with shorter life expectancies systematically take their pensions as early as possible, then pension payments will inevitably have to be higher than that assumed in the calculations. Individual behaviour is understandable and rational. This is not ideal, at least from a pension policy perspective.

Click here for an abstract of the study.