copy the linklink copied!Incomes of older People
Incomes of older people are on average lower than those of the total population. The over-65s had incomes of 87% of the total population’s in 2016 on average, broken down into 93% for the 66-75 and 80% for the over-75s. In 22 out of 36 OECD countries, public transfers provide more than half of gross income after age 65.
People over 65 had incomes amounting at 87% of population incomes, on average, in 2016 or latest (Table 7.1). Older people fared best in France, Israel and Luxembourg in relative terms where incomes for the over-65s were equal or slightly higher than for the total population. Older people also had high relative incomes in Greece, Italy, Portugal and Spain in international comparison. In Estonia and Korea, by contrast, the income of older people was about one-third lower.
Average incomes tend to fall with age after retirement. Lower incomes for older retirees are partly explained by cohort effects such as the past growth of real earnings. Over time this translates to higher earnings for each successive cohort and therefore higher pensions in retirement if pensions of past cohorts are not indexed to wage growth. Indeed, indexation principles of pension benefits in payment also play a large role: price indexation protects purchasing power, but tends to lower relative income over time. This particularly affects older women who live longer, which adds to their lower own entitlements due to lower past employment and wages compared to men. Moreover, older people live alone more often, which lowers their equivalised disposable income given household economies of scale.
The income of people aged over 65 has increased relative to the total population’s in more than two-thirds of OECD countries over the past decades. Driven by a maturing pension system, the over-65s in Israel have seen the strongest rise in their relative income of about 20 percentage points, from 81% in 1995 to 101% in 2017. Greece and Norway record a similar strong increase as well as Portugal since 2005. The sharpest decline (-8 p.p.) is reported for the over-65s in Chile since 2006, but from a high level.
Looking at other G20 countries, incomes of people aged over 65 substantially exceeded those of the total population in Brazil and India in 2013 and 2011, respectively. In China, the Russian Federation and South Africa relative income of the 66+ lies above 80%.
Sources of income
Of the four main sources of income on which older people draw, public transfers (earnings-related pensions, resource-tested benefits, etc.) and private occupational transfers (pensions, severance payments, death grants, etc.) account for two-thirds of the total income (Figure 7.1). Public transfers account for 55% and private occupational transfers represent 10% of older people’s incomes on average. The countries where over-65s are most reliant on public transfers are Austria, Belgium, Finland and Luxembourg: more than 80% of their incomes come from that source. Public transfers represent only 6%, 15% and 18% of all income in Mexico, Turkey and Chile, respectively. Private occupational transfers are of particular importance in 12 OECD countries, with the Netherlands being highest at 39%.
Work accounts for 25% and capital for about 10% of older people’s incomes on average. Work is especially important in Korea and Mexico, where it accounts for more than half of old-age income; it also represents a large share of income in Chile, Estonia, Israel, Japan, Korea, Latvia, Lithuania, New Zealand, Poland, the Slovak Republic, Turkey and the United States. Also, as incomes are measured at the household level, work is likely to be a more important income source for older people where many of them live in multi-generational households.
Capital, mostly private pensions, represents 40% of all income sources of older people in Canada. In Denmark and New Zealand, capital represents over 20% of all income.
Definition and measurement
Incomes of older people groups all incomes from employment, self-employment, capital and public transfers. The data shown are for disposable incomes (i.e., net of personal income tax and social security contributions). Incomes are measured on a household basis and equivalised with the square-root equivalence scale to adjust for differences in household size. See OECD Income Distribution Database for more details on definitions and data sources. The special chapter on “Incomes and poverty of older people” in OECD (2013) provides a more detailed analysis.
Further Reading
OECD (2019), , Income DIstribution Database, http://www.oecd.org/social/income-distribution-database.htm (accessed on 15 September 2019).
OECD (2019), , Will Future Pensioners Work for Longer and Retire on Less? Policy Brief on Pensions, https://www.oecd.org/pensions/public-pensions/OECD-Policy-Brief-Future-Pensioners-2019.pdf.
OECD (2013), Pensions at a Glance 2013: OECD and G20 Indicators, OECD Publishing, Paris, https://dx.doi.org/10.1787/pension_glance-2013-en.
Note: Income from work includes both earnings (employment income) and income from self-employment. Private occupational transfers include pensions, severance payments, death grants and other. Capital income includes private personal pensions and income from the returns on non-pension savings. Data are for 2016 except for some countries; see note of Table 7.1.
Source: OECD Income Distribution Database, http://www.oecd.org/social/income-distribution-database.htm (September 2019 version).
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