Retirement Pensions and Disability Insurance for the 21st Century

Abstract

This project estimates the degree of disability risk among the United States and English over-50 populations. Using a disability measure that closely matches the criteria used by English and U.S. disability systems, we find both higher levels of disability in the U.S. and higher levels of disability risk in the U.S. Furthermore, we estimate spillovers between disability insurance and retirement pension program in the context of the increase in the United Kingdom retirement age for women in the years 2010 to 2019. We document that, despite a significant increase in disability benefit take-up among disabled individuals who would have been otherwise retired, these individuals experienced large losses in household income. Healthy individuals, in contrast, experienced much smaller losses in income, as they responded to the increase in the retirement age by increasing their labor-force participation. Finally, we develop a dynamic model of labor supply, social security benefits, and savings to evaluate the U.K. disability benefit system in the context of the U.K. retirement reform. This model uses as its inputs the parameters of the disability process we have estimated, and is estimated to match the responses to the reform. It can then be used to evaluate other joint reforms of disability and retirement program.