Pensions and timing of retirement: the case of the public service pension scheme in Uganda

Abstract

Unsustainable defined-benefit public pension scheme, rising life expectancy, and high level of unemployment endanger the socioeconomic and political stability of Uganda’s economy. This research approaches the problem from labor supply point of view by: (i) analyzing the effect of the public service pension scheme on timing of retirement; (ii) investigating the required early retirement incentives that would increase employment in the public service; and (iii) determining the predictors of postretirement employment in the public service in Uganda. Using a cross sectional secondary dataset of the retired public servants from the Uganda’s Pension Department of the Ministry of Public Service (2016), this study finds the model fitting the observed aggregate retirement behavior very well. Results reveal: first, that the retirement conditions in the public service’s pension scheme in terms of the: mandatory retirement age (MRA), early retirement age (ERA), minimum tenure (MT), and pension benefits; significantly influence timing of retirement. This implies that the public service pension scheme in Uganda can be used as a fiscal tool for addressing labor supply challenges in the country. Second, about 20 percent increment in the monthly pension benefits, and 10-year increment in ERA jointly with a 5-year increment in MRA raises the likelihood of new jobs pace by up to 12.2 percent and 30 percent respectively, through early retirement. This implies that these early retirement incentives can be used to achieve intra-generational equity where some previously employed public servants retire early and survive on pension benefits as few unemployed people join public service to earn a wage. Third, among other predictors, postretirement employment in the public service is explained by: entry age, tenure, and salary. These factors can be used by the government to achieve a sustainable pension scheme through old age employment (increased labor supply) which reduces the years taken to claim pension benefits.