Poverty and Income of Older People in OECD Countries

Abstract

The analysis presented in this paper indicates that OECD member countries differ significantly in terms of the poverty rate of older retired persons. Making use of the OECD Income Distribution Database and a country-specific relative poverty line, the paper finds that almost 13 per cent of the older persons (aged above 65) living in OECD countries are poor. Countries with low poverty rates for the elderly generally have a good social safety net in the form of a basic pension (e.g. the Netherlands, New Zealand and Canada) and/or they offer strong redistribution in the earnings-related contributory pension schemes in the form of minimum guaranteed pensions (e.g., Austria). The overlapping groups of single women and the oldest age cohort (aged 75 ) have, in general, a much higher poverty rate compared with other subgroups. For women, this is mainly due to the features of their shorter working career; while for the oldest individuals the reason lies in the lack of pension coverage during the earlier part of their working career and in the indexation of pension benefits to prices rather than earnings. The paper also shows that poverty rates for all age groups above 50 declined (during the period between mid-1980s to mid-2000s), while those for people below that age rose, and this can be attributed to the success of past pension policies in providing adequate pension benefits. However, the paper also notes that recent pension reforms have scaled down the level of public pension benefits, mainly for the fact that these reforms were initiated in view of financial sustainability concerns, and with little con. Thus, in the absence of longer work careers and/or good returns from supplementary pension system, it is likely that future generations of retirees will be poorer more often than the rest of the population. The paper argues that a holistic approach to pension reforms, looking across all components of a pension system as well as labour market measures, is required in developing solutions which are both financially and socially sustainable in the long term.