  Most people are mistaken about the details of their pensions. Mistaken
beliefs about financially important policies imply significant informational
frictions. This paper incorporates informational friction, specifically a cost
of attention to an uncertain pension policy, into a life-cycle model of
retirement. This entails solving a dynamic rational inattention model with
endogenous heterogeneous beliefs: a significant methodological contribution in
itself. Resulting endogenous mistaken beliefs help explain a puzzle, namely
labour market exits concentrate at official retirement ages despite weak
incentives to do so. The context of the study is the UK female state pension
age (SPA) reform. I find most women are mistaken about their SPA, mistakes are
predictive of behaviour, and mistakes decrease with age. I estimate the model
using simulated method of moments. Costly attention significantly improves
model predictions of the labour supply response to the SPA whilst accommodating
the observed learning about the individual's SPA. An extension addresses
another retirement puzzle, the extremely low take-up of actuarially
advantageous deferral options. Introducing costly attention into a model with
claiming significantly increase the number of people claiming early when the
option to defer appears actuarially advantageous.
