Where’s my pension gone? Labour supply effects of mistakes in retirement planning

I analyse how agents respond to realising mistakes in their retirement planning using a reform to the state pension age for women in the UK. This reform raised the age at which women could start receiving their public pension by several years. However, many women were not aware that this reform had been put in place, leading them to have mistaken beliefs about when they would be able to start receiving their pension. I first document the correlates of mistaken beliefs using data from the English Longitudinal Study of Ageing (ELSA) and present descriptive evidence suggesting an increase in labour supply after people realise they were mistaken about their pensions. I then build a life-cycle model of consumption and labour supply around retirement, where agents face a cost of cognitive effort of paying attention to reforms to the pension system, and I estimate the model by matching data moments from ELSA for the cohorts of affected women. I find that mistaken beliefs about the reform cost agents £1148 on average, with notable heterogeneity by demographics, and that agents in the model significantly increase labour supply once they realise their mistakes.