Los daños causados por la crisis ya abarcan "tres generaciones" (Parte II)

Los daños causados por la crisis ya abarcan "tres generaciones" (abuelos- pensionistas, padres-trabajadores o parados, e hijos-empobrecidos y sin futuro) (Parte II)

Anexo: Informes de Organismos Internacionales sobre pensiones, salarios y niñez

Pensions at a Glance 2013 – OECD and G20 indicators Executive summary

This edition of Pensions at a Glance examines the distributional impact of recent

pension reforms and analyses how housing, financial wealth and publicly provided services may affect living standards in old age. It also contains a comprehensive selection of pensions policy indicators, covering: the design of pension systems; future pension entitlements for men and women at different earnings levels; finances of retirement-income systems as a whole; the demographic and economic context in which retirement-income systems operate; private pensions and public-pension reserve funds. The publication also includes profiles of the pension systems for all OECD and G20 countries.

Later retirement ages and increased private pensions arrangements

Reforms vary between countries, but there are two main trends. First, reforms of pay-as- you-go public pension systems, aimed at postponing retirement, have introduced higher pension ages, automatic adjustment mechanisms and modified indexation rules. These should improve financial sustainability of pension provision. Retirement ages will be at least 67 years by around 2050 in most OECD countries. Some others are linking the pension age directly to the evolution of life expectancy. Second, governments have been looking at funded private pension arrangements. While the Czech Republic, Israel and the United Kingdom have introduced defined-contribution pension schemes, Poland and Hungary have reduced or closed these.

Pension reforms made during the past two decades lowered the pension promise for workers who enter the labour market today. Working longer may help to make up part of the reductions, but every year of contribution toward future pensions generally results in lower benefits than before the reforms. While future pensions will decline across the earnings range, most countries have protected the lowest earners from benefit cuts; everywhere, except in Sweden, pension reforms will hit the highest earners most.

Adequate living standards in old age

The reduction of old-age poverty has been one of the greatest social policy successes in OECD countries. In 2010, the average poverty rate among the elderly was 12.8%, down from 15.1% in 2007, despite the Great Recession. In many OECD countries, the risk of poverty is higher at younger ages. Incomes of people aged 65 years and older in OECD countries reach, on average, about 86% of the level of disposable income of the total population, ranging from almost 100% in Luxembourg and France to less than 75% in Australia, Denmark and Estonia. However, to paint a more complete picture of pensioners" retirement needs, other factors -such as housing wealth, financial wealth and access to publicly provided services- also need to be considered.

In OECD countries, on average more than three-quarters of those aged 55 and above are homeowners. Housing can make a major contribution to pensioners" living standards, because they save on rent and can, when necessary, convert their property into cash through sale, rent, or reverse mortgage schemes. Nevertheless, homeowners may still be

income-poor and may find it difficult to pay for both home maintenance and their daily needs.

Financial wealth can complement other sources of retirement income. Unfortunately, recent internationally comparable data is lacking in this area, making comprehensive assessment difficult. The extent to which financial wealth can help reduce the risk of poverty in old age depends on its distribution; as wealth is strongly concentrated among the top of the income distribution, its impact on poverty among the elderly is limited.

Access to public services, such as health care, education and social housing, also affects older people"s living standards. Long-term care is very important as care costs associated with greater needs (i.e. 25 hours a week), may exceed 60% of the disposable income for all but the wealthiest one-fifth of the elderly. Women, who live longer than men, have both lower pensions and less wealth, are at a particular risk of old-age poverty when long-term care is needed. Public services are likely to benefit the elderly more than the working-age population: adding their value to incomes, about 40% of older people"s extended income is made up of in-kind public services, compared to 24% for the working-age population.

Key findings

Population ageing means that in many OECD countries, pension expenditures will tend to increase. Recent reforms have aimed at maintaining or restoring financial sustainability of pension systems by reducing future pension spending. The social sustainability of pension systems and the adequacy of retirement incomes may thus become a major challenge for policy makers.

• Future entitlements will generally be lower and not all countries have built in special protection for low earners. People who do not have full contribution careers will struggle to achieve adequate retirement incomes in public schemes, and even more so in private pension schemes which commonly do not redistribute income to poorer retirees.

• It is essential that people should continue paying in contributions to build future pension entitlements and ensure coverage. However, increasing pension age alone will not suffice to ensure people stay effectively on the labour market. A holistic approach to ageing is needed.

• Retirement incomes come from different sources and are subject to different risks, related to labour markets, policy, economic conditions and individual circumstances. Unemployed, sick and people with disabilities may not be able to build adequate pension entitlements.

• Current retirees have high incomes relative to the total population: 86% on average in OECD. This outcome and the reduction of old-age poverty are policy successes of the last decades.

• Because of stigma, lack of information on entitlement, and other factors, not all elderly people who need last-resort benefits claim them. There is thus a certain degree of hidden old-age poverty.

• The retrenchment of public pension systems, trends towards working longer and more reliance on private pensions may increase inequality among retirees.

• Housing and financial wealth supplement public pension benefits. They do not, in their own right, appear to be sources of income that can be expected to replace a proper pension income. Better internationally comparable data are urgently needed to explore in greater detail how housing and financial wealth can contribute to the adequacy of retirement incomes.

• Public services are retirement-income enhancers. This is especially true of healthcare and long-term care services. Services benefit the poorest retirees much more than they do richer elderly households. Public support is set to play an increasingly important role in preventing old-age poverty among people requiring health and long-term care services…

Recent pension reforms Key goals of pension reform

This section examines pension reform against six of its key objectives:

• 1. Pension system coverage in both mandatory and voluntary schemes.

• 2. Adequacy of retirement benefits.

• 3. The financial sustainability and affordability of pension promises to taxpayers and contributors.

• 4. Incentives that encourage people to work for longer parts of their lifetimes and to save more while in employment.

• 5. Administrative efficiency to minimise pension system running costs.

• 6. The diversification of retirement income sources across providers (public and private), the three pillars (public, industry-wide and personal), and financing forms (pay-as-you-go and funded).

A seventh, residual, category covers other types of change, such as temporary measures and those designed to stimulate economic recovery.

Trade-offs and synergies between the objectives are frequent. For example, increasing fiscal sustainability by lowering the generosity of the pension promise is likely to have adverse effects on the adequacy of pension incomes. On the other hand, widening the coverage of occupational pensions eases the pressure on the state budget to provide a pension and helps to diversify risk and improve the adequacy of retirement incomes.

Overview of pension reforms

Table 1.1 below shows the type of reform package adopted in each of the 34 OECD countries between 2009 and 2013. Table 1.2 considers reform in much greater details.

All 34 OECD countries have made reforms to their pension systems in the period under scrutiny. In some countries, like Belgium and Chile, reform entails phasing in measures under the terms of legislation passed in the previous five-year period (2004-08). Since then, reform has increasingly focused on improving financial sustainability and

administrative efficiency in response to the consequences of the economic crisis and ageing populations.

Countries, like Greece and Ireland, that have revised the way in which they calculate benefits have been the worst affected by the economic downturn. Italy, too, stepped up the pace of its transition from defined benefit public pensions to notional defined- contribution (NDC) accounts in 2012.

Between 2004 and 2008 many countries -Chile, Italy and New Zealand, for example- undertook reform to improve pension coverage and safety net benefits as part of their efforts to fight poverty in old age more effectively. While some have continued in that direction, many others have concentrated on offering the incentive of an adequate retirement income to longer working lives. Most OECD countries are thus increasing their retirement ages, albeit gradually.

The following sections review and compare in detail the reform measures enacted or implemented by OECD countries between 2009 and 2013 to meet the six objectives identified above…

Financial sustainability

Many OECD countries have passed reforms to improve the long-term financial sustainability of their pensions systems, principally to secure greater savings for the state budget.

A particularly frequent measure has been the reform of pension indexation mechanisms, although the goals and effects of such action vary across countries and income levels. Some new indexation rules move towards less generous benefits, an especially sought- after effect in countries grappling with fiscal problems. For example, the Czech Republic, Hungary and Norway no longer index pensions to wage growth, while Austria, Greece, Portugal and Slovenia have frozen automatic adjustments for all but the lowest earners. In Luxembourg, the expected upward adjustment of benefits has been scaled back by 50%, while in 2010 Germany amended its planned increase in pension levels to avoid pressure on the federal budget and suspended the cut it had scheduled in contribution rates in 2009.

In Australia, Finland and the United States, by contrast, the freezes on pensions and changes in indexation rules were meant to offset the drop in benefit levels that the standard, inflation-based index would have involved. Policy action in the three countries was actually designed to preserve pensioners" purchasing power.

Greece and Ireland have taken some of the most far-reaching fiscal consolidation measures. Ireland now levies pensions from public sector wages and has limited both early withdrawals from pension funds and other tax privileges. Portugal, too, has enacted pension levies. In Greece, the government has lowered the average annual accrual rate and tied pension indexation to the variability of the consumer price index (CPI) rather than to civil servants" pensions. In addition, Greece now calculates pension benefits on the basis of lifetime average pay rather than final salary and, since January 2013, it has cut monthly pensions greater than EUR 1 000 by between 5% and 15% depending on pension income.

To lower the government"s financial obligations in private plans, New Zealand has slashed tax credits for contributions by 50% up to a ceiling of NZD 521 and suspended tax exemptions for both employers and employees. Similarly, Australia halved the caps allowed on concessionally-taxed contributions to private plans (2009) and the tax rate for wealthier contributors to private pensions has been increased in order to better fund pension reforms in progress (2013). From July 2013, a higher cap allowed on concessionally-taxed contributions has been legislated for people aged 50 and over.

Significant changes to the pension formula are now effective in Norway, where benefit levels for younger workers have been linked to life expectancy and are now based on full contribution histories rather than on the best 20 years. Finland, too, now also ties earnings-related pensions to life expectancy and Spain will do the same for all pensions in the near future. A reform proposal is currently under discussion in Spain (September 2013) that should anticipate the moment since when pensions will be linked to life expectancy: from 2027 to 2019.

Some Central European countries have altered the equilibrium between private and public schemes in order to divert financing from private funds and increase inflows to the state budget. Hungary has gradually dismantled the mandatory second pillar since the end of 2010 and transferred accounts to the first pillar. In Poland, contributions to

private schemes are to be progressively reduced from 7.3% to 3.5% to allow an increase in contributions to its new pay-as-you-go public financing pillar. Finally, the Slovak Republic allowed workers to move back to the state-run scheme from private DC plans in June 2009 and made occupational pensions voluntary for new labour market entrants. However, the move was short-lived: in 2012, private pensions were again made compulsory.

Work incentives

Many OECD countries" pension reforms are aimed at lengthening working lives so that people build higher pension entitlements and improve the adequacy of their retirement income.

Measures adopted have been of three main types: i) increases in the statutory retirement age; ii) improved provision of financial incentives to work beyond retirement age, e.g. through work bonuses and increases in pension benefit at retirement; and iii) less or no early retirement schemes.

In the last decade, most of the 34 OECD countries have passed legislation that raises the retirement age or the contribution requirements that earn entitlement to full pension benefits. Many countries have raised the bar above 65 years of age to 67 and higher. Others, such as Norway and Iceland, were already on 67, and a few -such as Estonia, Turkey and Hungary- will not exceed 65 years of age.

Slovenia enacted a reform in January 2013 that gradually increased women"s statutory retirement age to 65 by 2016, when it will be the same as men"s. Likewise, legislation in Poland in June 2012 increased the age to 67 for both sexes, albeit on different timelines: retirement at 67 will be effective for men in 2020, but only by 2040 for women. Australian women"s Age Pension age rose to 65 in July 2013 and will again rise -to 67- for both men and women by 2023. In late 2011, Italy also introduced a reform that gradually increased the age at which both sexes start drawing a pension to age 67 by 2021 – a significant hike for women in the private sector who, until 2010, retired at 60. Similarly, in Greece women will stop working at the same age as men -65- as of December 2013. The retirement age will then gradually rise to 67 for men and women alike over the next decade.

These examples reveal a clear trend across countries towards the same retirement age for men and women. Only in Israel and Switzerland are projected retirement ages still different. In addition, some OECD countries -Denmark, Greece, Hungary, Italy, Korea and Turkey- have also opted to link future increases in pension ages to changes in life expectancy, meaning that retirement ages in both Denmark and Italy, for example, will go well beyond age 67 in the future. However, automatic adjustment is scheduled to run only from 2020 at the earliest. In the Czech Republic there will be a flat increase of two months per year in the retirement age from 2044, by which time the retirement age will already have reached age 67.

In France, pensions are generally determined by age and the number of years during which a worker contributes. Workers may retire with no penalty from the age of 62 at the earliest and should have paid in to a pension scheme for at least 42 years – a minimum requirement that will increase in the future. The age at which workers can retire -irrespective of the duration of their contribution period- will rise to 67 by 2022.

Some countries have used financial incentives to encourage people to continue working. Australia and Ireland have offered bonuses to older workers, while France and Spain award pension increments to workers who defer their pension take-up. The Swedish government increased its Earned Income Tax Credit (EITC) in two steps in 2009 and 2010.

The EITC is designed to stimulate employment and increase incentive to work and is higher for workers above 65. The employer"s social security contribution is also lower for workers over 66. However, a larger number of OECD countries have introduced benefit penalties for retirement before the statutory or minimum age – Denmark, Italy, Poland and Portugal are some examples. Poland and Portugal have abolished and suspended, respectively, their early retirement schemes, while Italy replaced its arrangement by a less generous one, tying eligibility criteria to specific age and contribution requirements in response to projected rises in life expectancy.

Other types of reform that encourage late retirement are, for example, the removal of upper age limits for private pension compulsory contributions in Australia. Luxembourg, by contrast, has lowered its rates of increase in pension savings. The effect of the measure is that, if workers are to enjoy pensions at pre-reform levels, they will need to contribute for an extra three years or accept an average pension entitlement in 2050 that will be approximately 12% less than the present one.

Some countries have directly addressed the labour market to lengthen working lives. They have taken measures to ensure older workers retain their employment status and/or that they are not discriminated against on the job market. The United Kingdom, for example, has abolished the default retirement age (DRA) in order to afford workers greater opportunities for, and guarantees of, longer working lives (the OECD series on Ageing and Employment Policies offers more detailed analysis of the issue of older workers, building on the work from (OECD, 2006).

Administrative efficiency

The high costs of administering private pension plans that are passed on to members have been a policy concern for many OECD countries in recent years – especially where systems are mandatory or quasi-mandatory. However, administrative efficiency is also a policy priority in voluntary plans. High fees discourage workers from joining voluntary plans and make mandatory ones very costly. In fact, cost inefficiencies are a threat to the sustainability and suitability of plans themselves. Estimates suggest, for example, that the fees a worker is charged for belonging to a private pension plan can account for up to 20% or 40% of his or her contribution.

Several countries -Australia, Chile, Japan and Sweden- have made policy reforms to render national pension schemes more cost efficient. Australia introduced a simple, low- cost new scheme -MySuper- in July 2013 with the aim of providing a default superannuation product with a standard set of features for comparability. Similarly, the Chilean government has been fostering competition among plan managers to courage the emergence of affordable, cost-efficient schemes. In Sweden a new low-cost fund, AP7, has been competing with expensive investment options since 2010. In the same vein, Japan set up a new authority in 2010 to run public schemes at a lower cost, while centralised private pension management is a policy objective in Mexico and the United Kingdom.

Denmark, Greece, Italy and Sweden have merged the different authorities in charge of managing and paying social security benefits. In Greece, for example, the number of plans had dropped from 133 to just three by the end of 2010. The Greek government has also unified all workers" benefit contributions in a single payment to simplify matters and prevent evasion. Greece (again) and Korea have set up information systems for managing social security records in order to keep their pension systems accessible and efficient.

Finally, Estonia recently enforced caps on the fees passed on to contributors, while the Slovak Republic has tied fees to pension funds" returns on investment rather than to their asset value.

Diversification and security

Policies to diversify and secure savings have taken four main forms:

• 1. Voluntary pension plans to improve investment options for workers and increase competition among funds. Canada, the Czech and Slovak Republics, Poland and the United Kingdom have introduced such schemes.

• 2. Regulations that allow individuals greater choice over the way their retirement savings are invested in private plans. Canada, Estonia, Hungary, Israel, Mexico and Poland, for example, have adopted this policy, supported by measures to move people automatically into less risky investments as they get closer to retirement, a policy recommended in earlier OECD analysis (OECD, 2009).

• 3. The relaxing of restrictions on investment options to foster greater diversification of pension funds" portfolios. Chile, Finland, Switzerland and Turkey have followed this path, with Chile and the Slovak Republic allowing pension funds to take larger shares in foreign investments in order to hedge the risk of national default.

• 4. Action to improve pension funds" solvency rates. Canada, Chile, Estonia and Ireland have introduced stricter rules on investment in risky assets in order to protect pension plans" members more effectively. In Canada and Ireland, state direct intervention has helped financially insolvent funds to recoup losses in their asset values caused by the financial crisis. Finally, Finland and the Netherlands temporarily relaxed solvency rules to allow funds a longer time to recover.

Other reforms

The "other reforms" category covers a mixed bag of policy measures. Although their objectives differ from those typical of pension systems, they nonetheless affect pension parameters.

Helping people to ride the financial crisis has been a priority in many OECD countries and policy packages implemented to that effect have often involved pension systems. For example, Iceland has allowed early access to pension savings so that people hit hard by the economic downturn have some financial support. The Australian government issued new benefit packages designed to assist people in meeting such needs as home care and the payment of utility bills. Public contribution to the New Zealand Superannuation Fund was discontinued in 2009. The measure has accelerated the gradual run down of this fund which was originally scheduled from 2021 onward.

The purpose of all these measures has been to induce people to spend money to support domestic demand and thus speed up economic recovery. In many cases, they have also been part of action plans to prevent low earners and pensioners slipping below the poverty line.

Some countries have also retreated from earlier commitments to pre-finance future pension liabilities through reserve funds. Ireland, for example, has used part of its public pension reserves to recapitalise the country"s banking sector teetering on the brink of financial default. The country has suspended any further contributions to the National Pension Reserve Fund in response to its large budget deficit. Similarly, the French government began to draw on its national pension reserve (Fonds de réserve pour les retraites) much earlier than originally envisaged – in 2011 rather than in 2020. Other countries, like Australia and Chile, however, have maintained their commitment to pre-funding, although it should be said that they have not been as badly affected by the economic crisis as Europe…

Countries with only one major reform in the last 20 years

Countries with several reforms in the last 20 years

Impact on pension wealth

What if pension ages had not increased?

The role of housing, financial wealth and public services for adequate living standards in old age

Figure 2.1 shows OECD national net pension replacement rates (i.e. the ratios of pension benefits to earnings after taxes and social security contributions) for full-career workers entering the labour market in 2012 at average and low earnings relative to the economy-wide average. The pension replacement rates are therefore forward-looking and apply to the future entitlements assuming that current pension rules will apply throughout their career until they reach the standard pension age in their country. Countries with the highest net pension replacement rates for low earners are Australia, Denmark, Israel, the Netherlands and Turkey – all above 100%. Countries whose replacement rates are well below the OECD average are Germany, Japan, Mexico, Poland, and the United States, where low earners" pension benefits replace only between 50% and 60% of their pre-retirement earnings…

The analysis of benefit values provided by these schemes is complicated by the existence of multiple programmes in many countries. In some cases, benefits from these schemes are additive. In others, there is a degree of substation between them.

On average, safety-net retirement benefits are worth 22.9% of average worker earnings. Eleven countries provide a minimum pension above this safety-net level. For full-career workers, the average retirement income -including these contributory minimum pensions- is 28.2% of average worker earnings.

About a third of older people receive some support from basic, targeted or minimum pensions on average. Data on coverage are presented in Figure 2.2 just for non- contributory safety-net benefits and contributory minimum pension…

Living standards in retirement: Incomes and poverty in old age

An at-a-glance idea of pensioner well-being can be gleaned from looking at the average income of the elderly in relation to the overall population"s. Figure 2.3 shows the relative average mean equivalent income of the over-65s, remarkably similar across countries despite the diversity of retirement-income systems. In the late 2000s, elderly incomes in two-thirds of OECD countries accounted for an average of 86.2% of the total population"s…

Analysis of the sources of old people"s income yields further insight into their living standards. Figure 2.4 shows that during retirement they rely heavily on public pensions in the form of earnings-related or resource-tested benefits which account for an average of nearly 59% of their incomes in the 34 OECD countries…

Figure 2.5 shows the average income shares of the elderly by decile of the income distribution in OECD countries. The share of work-based income grows from less than 5% among the lowest 10% of incomes to just over 40% in the highest decile. The distribution of capital income is also skewed towards the richer income groups, albeit to a lesser extent than income from work. Public transfers, in turn, account for more than 85% of income in the poorest decile and less than 40% in the richest…

Previous OECD analysis has also demonstrated that older people"s incomes increased more sharply than those of the total population between the mid-1990s and the mid- 2000s (OECD, 2008, 2013a) in 21 OECD countries for which data are available. Figure

2.6 illustrates the trend, comparing the relative incomes of elderly people in the late 2000s (x-axis) and mid-1990s (y-axis). In countries to the right of the 45° line, older people"s incomes grew faster than those of the population as a whole. In those to the left, they did not…

Old people"s economic well-being has widely improved in recent decades, as their relative incomes have risen and poverty rates dropped. The fall documented in earlier OECD work between the mid-1980s and the mid-2000s (OECD, 2008) continued between 2007 and 2010 (Figure 2.7). Over those three years, average income poverty in the OECD rose from 12.8% to 13.4% among children and from 12.2% to 13.8% among young people. Among the elderly, however, relative income poverty shrunk from 15.1% to 12.8%, with falls in 20 countries and rises of around 2 percentage points in Turkey, Canada, and Poland only…

The risk of elderly poverty, measured against the threshold of 50% of the median equivalised household income, was less than 13% on average in the late 2000s in OECD countries. The poverty rate shown in Figure 2.8, however, captures only partially the risk of poverty in old-age because non-cash benefits such as the value of publicly provided services, are not included in the measure of income used. The percentage displayed in Figure 2.8 masks wide variations across countries: in the late 2000s, 25% or more of the over-65s were income poor in Australia, Mexico, Korea and Switzerland. The risk of poverty in old age was also above the OECD average in Chile, Greece, Israel, Japan, Slovenia, Turkey, and the United States. By contrast, it was 5% or less in the Czech Republic, France, Hungary, Iceland, Luxembourg, the Netherlands, and the Slovak Republic…

The median poverty gap illustrated in Figure 2.9 complements the headcount ratio with information on the depth of poverty. On average, the median income of the over-65s in the OECD area said to be "at risk of poverty" -i.e. with incomes below the 50% poverty line- was 18.4% below that line in the late 2000s. Differences across countries were substantial. Of the countries shown in Figure 2.9, the at-risk-of-poverty gap was widest in Korea, Ireland, Israel, Japan, Luxembourg, Mexico, and Turkey, where the elderly"s median equivalised incomes were 30% and more below those countries" poverty lines. It was at its narrowest (at 5% or less) in Denmark and Norway (followed very closely by New Zealand). Wider-than-average gaps were also recorded in Austria, Chile, Iceland, Switzerland, and the United States…

Figure 2.11 illustrates tenure patterns among the over-65s in the 28 OECD countries with publicly available data. On average, around 76% of heads of household in this age group own their homes. Of the remaining 24%, those who rent their accommodation at

market prices account for 15% and tenants who enjoy reduced rents or free accommodation (i.e. the "other status") represent 9%…

Housing tenure among the elderly also varies with socio-economic factors, owners" income being a particularly important determinant. Figure 2.12, which depicts homeownership among the over-65s (measured with data from the European Survey on Income and Living Conditions) by income quintiles in 23 EU-OECD countries, confirms that those with low incomes are less likely to be homeowners. Similar figures are observed in many other non-EU OECD countries. In Canada, the percentage of homeowners among the over-70s rises from 52% in the bottom decile of the income distribution, to 80% in the middle decile, and to more than 90% in the top decile. In the United States, the percentage of homeowners (in the total population) increases from 42% in the bottom quintile, to 66% on average in the second and third quintiles, and 87% in the top quintile…

The share of elderly households with mortgages also increases with income. The number of households paying a mortgage is much lower in the lowest quartile of the income distribution than in the top income quartiles (Figure 2.13)…

Using data from the OECD and the European Union, Figure 2.14 seeks to identify clusters of countries with respect to public pension expenditure, poverty, and homeownership among the elderly in the late 2000s. Public pension expenditure is taken as a proxy for pension generosity. It should be interpreted with caution, however, as high expenditure does not necessarily entail high pension benefits: people may actually receive relatively low benefits but have retired at an early age…

Factoring imputed rents into income generally increases the disposable income of householders who own the dwelling they live in or rent at less than the going market rate. Among the 22 OECD countries with relatively comparable data collected by EU-

SILC (Törmälehto and Sauli, 2013), the incomes of the over-65s rise by 18% on average when net imputed rent is added (Figure 2.15). The effects on incomes are substantial -between 20% and 29%- in Greece, Hungary, Iceland, Italy, Norway, Poland, Slovenia, the Slovak Republic, Spain, and the United Kingdom. The weakest effects, at around 5%, are observed in the Czech Republic, the Netherlands, and Portugal, while imputed rents account for some 10% to 15% of household equivalised disposable incomes in Austria, Estonia, France, and Germany. However, it is in Spain, which measures imputed rents with the rental equivalence method, that the resulting rise in disposable income is greatest…

Figure 2.16 shows poverty rates with fixed and floating poverty lines in selected European OECD countries before and after incorporating imputed rents. When the line is fixed, poverty is computed by comparing the incomes, augmented by net imputed rents, with the original poverty threshold calculated without imputed rent. With a floating line, poverty is computed with reference to a new income threshold that also includes the (net) imputed rent…

Mean and median financial wealth reveals wide disparities

Figure 2.20 illustrates households" mean and median financial wealth expressed in 2011 USD purchasing power parity (PPP) in countries studied in the LWS. While the mean reflects the simple average, the median shows the value which divides the population into two equal parts: one-half below the median line, the other half above. When the distribution is very unequal, as it is with financial wealth, the median is much lower than the mean.

Using comparable data from the LWS, average median wealth across the whole population is about USD 8 200. It ranges from USD 2 600 (at 2011 PPP rates) in Germany to almost USD 22 000 in Austria. Average mean wealth is much higher -at about USD 43 100- ranging from about USD 16 300 in Finland to USD 124 000 in the United States.

Examination of older age groups shows that median financial wealth in the over-50s age group is USD 14 300, while mean wealth amounts to about USD 63 000. Differences across countries are again very wide, with median wealth ranging from USD 5 600 in Finland to almost USD 39 000 in Japan and mean wealth from USD 22 000 in Finland to USD 219 000 in the United States…

There is a large gender gap in wealth holdings: women possess much less. Among the countries depicted in Figure 2.21, the gender wealth gap in old age is about 46% on average. Countries where the gap is widest are Belgium, France, Germany, Greece and Spain (see also D"Addio et al., 2013)…

The uneven distribution of financial wealth is also clearly visible in Figure 2.22, which shows the approximation of the Lorenz Curve based on ECB data. The x-axis sorts households by wealth deciles, while the cumulative proportion of financial wealth held by households lies along the y-axis. A perfectly equal distribution would describe a

straight 45-degree line showing that each 10% of population held exactly 10% of the overall wealth.

The larger the distance of the actual curve from the 45-degree line, the higher the inequality in the distribution of financial wealth. LWS data yield the same result. In the 13 OECD countries in Figure 2.22, the top 30% of the wealth distribution hold more than two-thirds of the financial wealth.

The costs of care and caring

Paying for long-term care can have dramatic consequences for the adequacy of retirement incomes (OECD, 2011; OECD, 2014b). The OECD 2011 report Help Wanted?

Providing and Paying for Long-Term Care shows that the costs associated with low care needs (i.e. ten hours per week) may rise to very high levels at old ages (65 and over) and account for more than 60% of a senior"s available income up to the fourth decile (Figure 2.27). Care costs that meet a wide range of needs (25 hours a week) may exceed 60% of disposable incomes up to the eighth decile (OECD, 2011c).Women, whose life expectancy is longer and who have lower pensions and less wealth are particularly exposed to old-age poverty when they begin to need long-term care (OECD, 2014b)…

Taken together and with respect to the whole population, education, healthcare, childcare, eldercare and social housing services enhance households" incomes by 28.8% on average in 27 OECD countries, with the largest aggregate effects in Sweden (41%) and the lowest in Australia (19%) (Figure 2.28).

Figure 2.29 also suggests also that public services are likely to benefit the elderly more than the working-age population: about 40% of older people"s extended income is made up of in-kind public services, compared to 24% for the working-age population at large. However, in some countries the share of public services in the disposable income of the elderly is much larger: it exceeds 70% in Sweden and Norway and 60% in Iceland and Denmark…

Figure 2.29 also suggests also that public services are likely to benefit the elderly more than the working-age population: about 40% of older people"s extended income is made up of in-kind public services, compared to 24% for the working-age population at large. However, in some countries the share of public services in the disposable income of the elderly is much larger: it exceeds 70% in Sweden and Norway and 60% in Iceland and Denmark…

Public services, particularly health- and eldercare, play an important part in enhancing household incomes at the bottom of the income distribution. Verbist et al. (2012) find that the aggregate value of services represents an average of 76% of the disposable incomes of the poorest 20%, but only 14% of those of the richest 20% (Figure 2.30)…

Looking in particular at long-term care, Verbist et al. (2012) stress their redistributive impact in that people towards the bottom of the income distribution benefit most (Figure 2.31). In Northern European countries for example, the bottom quintile are the recipients of between 40% and 50% of long-term care: on average in the 14 OECD countries in Figure 2.31, long-term in-kind care benefits boost incomes among the bottom quintile by more than one-third and incomes among the top quintile by less than one-fifth (Verbist et al., 2012)…

Summary and conclusions

This chapter examined the adequacy of retirement incomes from a wider perspective than merely the pension entitlements of current and future retirees. As living standards in retirement are also influenced by a range of other factors, the analysis looked at the impact of housing wealth, financial wealth, and the value of publicly-provided services on the adequacy of elderly people"s incomes.

Multiple sources of retirement income

In OECD countries the average monetary living standards of older people, aged 65 and over, are generally high today. They stand at about 86% of the total population"s level of disposable income, ranging from close to 100% in Luxembourg and France to just under 75% in Australia, Denmark, and Estonia.

Retirees in OECD countries receive their incomes from different sources, which vary widely across countries. In some, such as France, Hungary, and Austria, public transfers make up the bulk of retirement incomes. In other countries, capital incomes -especially from private pension schemes- play an important role. Examples are Canada, Israel, and the Netherlands. In other countries still, like Chile, Japan, Korea and Mexico, many older people work and earn a substantial share of their retirement income in the labour market. Everywhere, however, low-income retirees rely almost exclusively on public pensions and other income transfers.

Reduction of old-age poverty: a policy success

The reduction of old-age poverty over the decades has been one of the greatest successes of social policy in OECD countries. In 2010, the average OECD poverty rate among the elderly was 12.8% – down, in spite of the Great Recession, from 15.1% in 2007. Only Canada, Poland and Turkey saw a rise in old-age poverty over that period. In many countries, younger age groups are now at higher risk of poverty than the elderly. Low old-age poverty is also reflected in the relatively low numbers of older people who receive safety-net benefits in OECD countries.

That being said, through stigma, lack of information on entitlement, and other factors, not all elderly people who need last-resort benefits claim them. There is thus a certain degree of hidden old-age poverty.

Homeownership is an asset in retirement

To paint a more complete picture of pensioners" retirement needs, this chapter examined other factors which affect their living standards: housing wealth, financial wealth, and access to publicly-provided services, such as health and long-term care services. A major obstacle to a comprehensive assessment, however, is the lack of internationally comparable data. Bearing this constraint in mind, the analysis showed that homeownership can make a substantial contribution to pensioners" living standards – they enjoy the financial advantage of living in their own homes and can, when necessary, convert their property into cash through sale, rent, or reverse mortgage schemes.

Homeownership rises with age: on average, 77% of over-55s are homeowners, compared to 60% of under-45s. However, the extent to which the elderly have or have not paid off their mortgages varies considerably from country to country. More than one in five elderly homeowners in Europe are still paying off their mortgages. In Switzerland, only 40% of older people are outright homeowners, compared to more than 90% in Hungary and the Slovak Republic, and around 80% in Australia, Chile and the United States.

In European countries, homeownership is more common among higher-income groups. Yet, even among the poorest 10% of the elderly, almost 70% are homeowners. In

Canada, more than 90% of over-70s in the highest income decile own their homes. Indeed, outstanding mortgage obligations are bigger and more widespread among higher-income retirees than among poorer ones.

Imputed rent boosts income, drops poverty

The monetary benefit that people derive from living in their own homes is known as "imputed rent". Different countries use different methods to calculate it, so comparing the results internationally is difficult. Nevertheless, adding imputed rent to the disposable income of the elderly increases it by an average of 18% in countries where data are available. The country where housing makes its biggest contribution to disposable income, increasing it by 29%, is Spain.