Around the world, population aging continues rapidly, and this trend has motivated many developing countries to introduce pension programs. However, the introduction of such programs may inadvertently affect cognitive functioning in old age. There is increasing evidence that mental activity is associated with improved cognitive function, suggesting that long-term labor force participation may ameliorate cognitive aging.
Understanding how pension plans affect cognitive function in old age is critical to fully recognizing their implications for well-being and gaining insight into how cognitive abilities develop over the life course. To examine how human capital depreciates over the life cycle, Binghamton University, State University of New York faculty are investigating how the pension program, the National Rural Pension Scheme (NRPS) and the China Health and Retirement Longitudinal Study (CHARLS) affect cognitive performance in rural China.
The study suggests that these pension plans may have unintended downstream effects. It also shows that access to pension plans can significantly explain cognitive decline in older age.
Plamen Nikolov, assistant professor of economics, said: “Because of this big population boom, China introduced a formal pension program (called NRPS) in rural parts of the country. The program was introduced due to China’s rapidly growing aging population and to alleviate poverty in the elderly.
“In rural parts of the country, traditional family care for the elderly has largely broken down, with no adequate formal mechanisms to take its place. For the elderly, inadequate transfers from informal families or community transfers could seriously reduce their ability to cope with illness or malnutrition.
After collecting administrative government data from the Chinese government on the implementation of the pension program, the team assessed an additional source of survey data that detailed the behavior and socioeconomic characteristics of participants in the new pension program.
Nikolov and his research team found that the new program had a significant negative impact on the cognitive functioning of the elderly participants. Memory loss is the most significant signal of mental decline, and this measure is strongly associated with dementia risk in neurobiological studies. According to Nikolov, the retirement program has a worse impact on women, and the findings are consistent with the mental retirement hypothesis, which states that a decline in mental activity leads to a decline in cognitive abilities.
Scientists have also found that pension benefits and retirement lead to improved health; the program also produced a sharp and much more negative impact on other dimensions: social activities, mental fitness activities, and engagement.
Nikolov said: “Program participants reported significantly lower levels of social engagement, with significantly lower levels of volunteering and social interaction compared to non-beneficiaries. We find that increased social isolation is strongly associated with faster cognitive decline among older adults. Interestingly, we found that the program improved some healthy behaviors.
“Program participants reported a reduced frequency of regular drinking compared to the previous year. Overall, the adverse effects of early retirement on mental and social engagement significantly outweighed the protective effect of the program on various health behaviors. Alternatively, the things that matter and define better health may be very different from those that matter for better cognition among older adults. Social engagement and connectedness may be the most powerful determinants of cognitive performance in old age.
“Many policy decisions require careful consideration of cause and effect. But understanding cause and effect in economic or policy matters is often hindered because controlled experiments—such as randomized controlled trials (RCTs)—may not always be practically or ethically possible. In such cases, economists often turn to a method called natural experiments.
Using this approach, researchers could compare how individuals of a similar age and socioeconomic status fare compared to similar individuals but in regions where no pension program exists. This allowed the research team to examine how the decision to retire affected cognition.
Nikolov said, “Individuals in areas that implement the NRPS have a significantly lower score than those living in areas that do not offer the NRPS program. Over the nearly ten years since its implementation, the program has led to declines in cognitive scores of almost one-fifth of a standard deviation on the memory measures we examine.
“Surprisingly, the estimated impacts of the program were similar to the negative findings for the same phenomenon, but in higher-income countries such as America, England and the European Union, demonstrating that retirement affects people in different areas in more similar patterns than we understood before. “
“We were surprised that retirement benefits and retirement led to reduced cognitive outcomes. In another study, we found a very strong finding that the introduction of pension benefits and retirement led to positive health benefits by improving sleep and reducing alcohol consumption and smoking. Retirement leading to reduced cognitive performance is a definitive finding for an unsuspected, puzzling problem, but one with significant welfare implications for the quality of life of an elderly person.
“This research will help create new policies to improve the cognitive functioning of older generations during retirement.”
“We hope that our findings will influence the way retirees view their retirement activities from a more holistic perspective and pay special attention to their social engagement, active volunteering and participation in activities that promote their mental acuity.” But we also hope to influence policy makers. We show strong evidence that retirement has important benefits.”
“But there are also significant costs. Cognitive impairments among the elderly, even if not severely disabling, result in a loss of quality of life and can have negative consequences for well-being. Policymakers can introduce policies aimed at reducing social engagement and mental activities. In this sense, retirement programs can generate positive consequences for the health status of retirees without the associated negative effect on their cognition.
Journal reference:
- Plamen Nikolov and Dr. Shahadat Hossein and others. Do retirement benefits accelerate cognitive decline in late adulthood? Evidence from rural China. Journal of Economic Behavior and Organization. DOI: 10.1016/j.jebo.2022.11.025
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