As one possible solution to the well-known financing crisis of unfunded social security systems,
an increase in the retirement age is a popular option. To induce workers to retire later, it has
been proposed to strengthen the link between retirement age and benefit level. The present
paper is devoted to analyzing the long-run financial implications of such a reform. We show
that with actuarial adjustments the long-run contribution rate is an increasing function of
the retirement age chosen by workers. Moreover, the implicit tax paid to the pension system
by a participant can increase in the long run if the retirement age rises in response to a
‘steep’ adjustment rule. In this sense, the proposed ‘cure’ may worsen the disease. Finally, we
show how the negative effects can be avoided by forming a capital stock from the additional
revenues due to later retirement.