How do financial incentives affect partial pension claiming? Quasi-experimental evidence from Finland’s flexible scheme

Abstract In 2017, Finland introduced a partial old-age pension scheme, allowing individuals to claim either 25 or 50 per cent of their old-age pension after turning 61, irrespective of their employment status. Claiming a partial pension before the statutory retirement age results in a permanent reduction in the old-age pension. In 2022, high inflation created an unusually large and temporary divergence of three percentage points between pension index adjustments for 2023. Individuals who claimed their pension before the end of 2022 received a permanently higher pension than otherwise similar individuals who claimed in early 2023. The study examines the effect of this temporary increase in the return to claiming a partial old-age pension before 2023 on pension claiming using regression discontinuity design and full population register data. Those who had the opportunity to claim a pension before the turn of the year were 8 percentage points more likely to claim a partial old-age pension in the first month of eligibility, with a relative effect as high as 79 per cent. The effect arises because individuals bring forward their pension claims. Individuals with higher pension accrual, higher earnings, or upper tertiary education were overrepresented among those responding to the temporary increase in the return to claiming. The study contributes to the literature by showing how changes in financial incentives affect the claiming behaviour of a flexible partial pension. Additionally, it contributes to the social policy literature by examining whether individuals notice changes in indexation and their subsequent effects on benefit levels.