Affluence and Poverty in Old Age: New Evidence from the European Community Household Panel

Abstract

The relative income positions and welfare of elderly persons in the EU are analysed using data from the European Community Household Panel. The elderly invariably receive lower average incomes than the non-elderly, but there are large variations across countries. Pensions represent the main source of income of the elderly, with labour and capital incomes contributing only marginally to total income. High replacement rates for old age pensions are not sufficient to guarantee protection against poverty in old age, as they fail to provide adequate support to vulnerable groups e.g., individuals with incomplete employment histories, or lone pensioners. A much stronger association exists between welfare or satisfaction in old age and income inequality than between welfare or satisfaction and the generosity of old age pensions. It is thus the inequality reduction potential of old age pensions, rather than their generosity, that appears to be the key element in determining the ability of a pension scheme to deliver an adequate standard of living to the elderly. Pension reforms that intend to separate the income redistribution and income insurance functions of old age pensions are likely to strengthen intra-generational income redistribution, and diversify the sources from which the elderly obtain their incomes. The multi-pillar scheme is thus likely to eliminate poverty in old age more effectively than current income financing.income distribution ; international comparisons ; pensions ; poverty