Incomes of older people

People over 65 had incomes amounting at 88% of population incomes on average in 2018 or latest (Table 7.1). Older people fared best in Costa Rica, France, Israel, Italy, Luxembourg and Portugal in relative terms where incomes for the over-65s were about or slightly higher than for the total population. Older people also had high relative incomes on average in Greece, Iceland, Spain and Turkey in international comparison. In Estonia, Korea and Latvia, 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 given growth trends in real earnings across cohorts due to productivity gains. Over time this translates into higher earnings for each successive cohort and therefore higher pensions in retirement if past wages are not uprated in line with average wage growth and if pensions in payment are not indexed to wage growth. As for the latter, while price indexation protects purchasing power, it 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 that of the total population in more than two-thirds of OECD countries over the past decades, and on average by 6.0 percentage points across all countries. Driven by a maturing pension system, the over-65s in Israel have seen the strongest rise in their relative income, about 22 percentage points, from 81% in 2000 to 103% in 2018. Norway records a similarly strong increase as well as Portugal since 2005. The sharpest decline (-10 percentage points) is reported for the over-65s in Poland since 2005, from 95.7 to 85.7, with Chile is next at -8 percentage points since 2006.

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 around two-thirds of the total income (Figure 7.1). Public transfers account for 57% and private occupational transfers represent 7% 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 5% and 18% of all income in Mexico and Chile, respectively. Private occupational transfers are of particular importance in 13 OECD countries, with the Netherlands being highest at 39%.

Work accounts for 26% 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, Costa Rica, Estonia, Iceland, Israel, Japan, Latvia, Lithuania, New Zealand, Poland, the Slovak Republic 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, Korea and New Zealand, capital represents over 20% of all income.

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[1]) provides a more detailed analysis.

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