Recent work on the theory of early retirement

Pension systems are often blamed for distorting the retirement age and they are held responsible for the widely observedtrend towards early retirement. In a world of laissez-faire or in a first-best setting, there would be no such distortions.However, they may be unavoidable when first-best instruments are not available, because health and productivityare not observable. We show that while there is no doubt that retirement age is too low in many countries, acomplete elimination of this bias is not the right answer. In other words, reforms that involve a switch to anactuarially fair system would be overshooting. We present normative and positive arguments. First, some distortionsare second-best optimal. Second, and on the positive side, the elimination of the bias might be problematic from apolitical perspective.