Across the globe, population aging continues rapidly, and this trend has motivated many developing countries to introduce pension programs. However, introducing such programs could fortuitously impact cognitive functioning in old age. There is growing evidence that mental activity is linked to enhanced cognitive function, suggesting that long-term workforce involvement may ameliorate cognitive aging.
Understanding how retirement plans affect cognitive function in old age is crucial for fully recognizing their welfare implications and gaining insight into how cognitive abilities evolve over the life course. To investigate how human capital depreciates over the life cycle, faculty at Binghamton University, State University of New York examine how the introduced pension program, the National Rural Pension Scheme (NRPS), and the Chinese Health and Retirement Longitudinal Survey (CHARLS), affects cognitive performance in rural China.
The study suggests that these retirement plans can have fortuitous downstream consequences. It also shows that access to retirement plans can significantly explain cognitive decline at older ages.
Plamen Nikolov, assistant professor of economics, said, “Because of this large demographic boom, China introduced a formal pension program (called NRPS) in rural parts of the country. The program was introduced because of China’s rapidly rising aging population and to alleviate poverty in old age.”
“In rural parts of the country, traditional family-based care for the elderly had largely broken down, without adequate formal mechanisms to take its place. For the elderly, inadequate transfers from either informal family and community transfers could severely reduce their ability to cope with illness or poor nutrition.”
After gathering administrative government data from the Chinese government on the implementation of the pension program, the team assessed an additional survey data source, which detailed the behavior and socioeconomic characteristics of participants in the new retirement program.
Nikolov and his research team found that the new program had a considerable negative impact on senior participants’ cognitive functioning. Delay in memory was the most significant signal of mental deterioration, and this measure has been strongly linked to dementia risk in neurobiological studies. According to Nikolov, the pension programme had more detrimental impacts on women, and the findings are consistent with the mental retirement hypothesis, which claims that a decline in mental activity leads to a decline in cognitive abilities.
Scientists also found that pension benefits and retirement lead to improved health; the program also induced a stark and much more negative influence on other dimensions: social activities, activities associated with mental fitness, and engagement.
Nikolov said, “Participants in the program report substantially lower levels of social engagement, with significantly lower rates of volunteering and social interaction than non-beneficiaries. We find that increased social isolation is strongly linked with faster cognitive decline among the elderly. Interestingly, we found that the program improved some health behaviors.”
“Program participants reported a reduced incidence of regular alcohol drinking compared to the previous year. Overall, the adverse effects of early retirement on mental and social engagement significantly outweigh the program’s protective effect on various health behaviors. Alternatively, the things that matter and determine better health might be very different from those that matter for better cognition among the elderly. Social engagement and connectedness may be the most powerful factors for cognitive performance in old age.”
“Many policy decisions entail careful consideration of causes and effects. But understanding cause and effect in economic or policy issues is often hampered because controlled experiments — such as randomized controlled trials (RCTs) — might not always be practically or ethically possible. In such cases, Economists often turn to a method called natural experiments.”
Using this approach, scientists could compare how individuals of a similar age and socioeconomic status fared compared to similar individuals but in regions where the pension program did not exist. This allowed the research team to examine how the decision to retire affected cognition.
Nikolov said, “Individuals in the areas that implement the NRPS score considerably lower than those living in areas that do not offer the NRPS program. Over the almost ten years since its implementation, the program led to a decline in cognitive performance by as high as almost a fifth of a standard deviation on the memory measures we examine.”
“Surprisingly, the estimated program impacts were similar to the negative findings regarding the same phenomenon but in higher income countries such as America, England, and the European Union, demonstrating that retirement affects people across different areas in more similar patterns than we previously understood.”
“We were surprised that pension benefits and retirement resulted in reduced cognitive performance. In a different study, we found a very robust finding that the introduction of pension benefits and retirement led to positive health benefits via improvements in sleep and the reduction of alcohol consumption and smoking. Retirement led to reduced cognitive performance is a stark finding about an unsuspected, puzzling issue, but a finding with significant welfare implications for one’s quality of life in old age.”
“This research will help create new policies to improve the cognitive functioning of older generations during retirement.”
“We hope our findings will influence how retirees view their retirement activities from a more holistic perspective and pay particular attention to their social engagement, active volunteering, and participating in activities fostering their mental acuity. But we also hope to influence policymakers. We show robust evidence that retirement has important benefits.”
“But it also has considerable costs. Cognitive impairments among the elderly, even if not severely debilitating, bring about a loss of quality of life and can have negative welfare consequences. Policymakers can introduce policies aimed at reducing social engagement and mental activities. In this sense, retirement programs can generate positive spillovers for the health status of retirees without the associated negative effect on their cognition.”
Journal Reference:
- Plamen Nikolov and Md Shahadath Hossain et al. Do pension benefits accelerate cognitive decline in late adulthood? Evidence from rural China. Journal of Economic Behavior & Organization. DOI: 10.1016/j.jebo.2022.11.025
