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Research

Depression Up After Pension Benefits Cut

Sudden changes in older workers’ financial expectations for retirement can cause depression, according to a 2011 study.

The study, which came out of the Netherlands, suggests that cuts in Dutch pensions, announced on very short notice, produced feelings of differential treatment and a loss of control that increased the incidence of depression among the workers who were adversely affected.

Workers were tested for depression two years after a 2006 pension reform reduced the share of their salaries replaced by the government-mandated defined benefit pension plans provided by employers.

Workers born in 1950 and after suddenly learned their “replacement rate” – the percent of pay the pension replaces – would drop to 64 percent, from the 70 percent initially promised.  Everyone born before 1950 was unaffected.  To replace the lost benefits, workers facing the cut would either have to save substantially more or work an additional 13 months.

The researchers tested more than 5,200 male workers for depression using a standard psychological test and found that 5.5 percent of those born in 1950 were depressed, compared with 2.8 percent of the unaffected group born the prior year.

They also tested whether the reforms had varying effects on different types of workers.  They found that workers’ health and incomes had no effect on depression, but their work tenure did.  Workers with more tenure in the pension plan were “significantly more depressed.”

One Response to Depression Up After Pension Benefits Cut

  1. Very important information. Not surprising to discover the link between depression and cuts in a major source of anticipated revenue. It will be interesting to see other studies. Thanks for the article.