Old age poverty in Australia?

The SMH points to a recent OECD report, claiming that over one-third of Australian pensioners live in poverty – with this being the second-highest rate in the OECD. Are we really that exceptional? No, we are not. Unfortunately, this is an example of analysis that undermines the usefulness of poverty research.

Apart from the headline writer’s sloppy conflating of older people with pensioners, there are several reasons why these numbers don’t provide a good indicator of the living standards of the Australian elderly.

These OECD statistics, like many poverty estimates for rich nations, define people as poor if their income is below half their national median income (adjusted for family size). However, income is not a very good indicator of living standards for the elderly – particularly in countries like Australia where the retired population has substantial wealth. The OECD cautions that superannuation lump sums are not counted in this poverty measure, but even more important are the lower housing costs associated with home ownership.

The figure below shows poverty rates which take account of housing costs in 7 different countries. These estimates are for the early 2000s, but I would still expect similar patterns now. Using income as the metric, poverty rates were highest in Australia (at 20%), followed closely by the US then the UK. Though these cross-national relativities are similar to those in the OECD study cited by the SMH, the poverty rate is lower. This is because of differences in the adjustment for family needs, and also because the Age Pension is very close to the poverty line with small changes in calculation methods moving large numbers from one side of the line to the other.

After housing poverty in 7 countries

The two right-hand panels measure poverty after subtracting housing costs from income. They are thus based on how much people have left for non-housing consumption. Because of varying data availability, the middle panel only includes rents and mortgage interest, while the right-hand panel also includes mortgage principal repayments in housing costs. (Both the incomes of the aged and the national medians are adjusted).

On this basis, Australia poverty rates among the older population are ‘middling’. Higher than in Canada and Finland, but lower than the UK, US, Italy and Sweden. The comparison with the US is particularly interesting, as they also have high rates of home ownership among the retired. However, we have many more low-income home owners, whereas their home ownership is more strongly associated with higher retirement incomes.

Who are the 15% of the retired who are poor after taking account of housing costs? Overwhelmingly, they are pensioners who do not own their home and are renting in the private rental market. Helping these private renters, and ensuring that more people are not forced into this situation in the future, is where our attention should be focused.

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5 Responses to Old age poverty in Australia?

  1. conrad says:

    Thanks — I was wondering much the same thing when I read that, and now I know what the real results are!

    One other thing that is important but generally ignored is the cost of living after subtracting housing costs. At least based on my N=1 sample (myself) Australia is very expensive in most areas (it would be nice to know the real results). This includes things like bills (power, telecommunications), travel costs, and food. This means living on the same amount may be much harder in Australia than other places and so the “poverty line” statistic is probably still a bit misleading when the really important variable is probably something like “living half-decently”.

  2. John Passant says:

    I think the income figures are informative to help rebut the lies about the need to control the age pension costs and to further encourage super savings (i.e. not address the superannuation tax expenditures.) And as far as I know you can’t spend wealth. Unless you force pensioners who own their homes to reverse mortgage them (as the P.C. floated).

    Even if we accept your analysis, what chance is there of any government just concentrating on the 15% you identify rather than the 30% the OECD identifies? Nothing from either side fills me with any confidence they will do anything.

  3. Hal says:

    Thanks Bruce for your helpful and (to my mind) corrective comments. As you would know I’ve been making similar points for decades, most recently to the SMH in commentary on the Global Age Watch findings mid last year. The key immediate point is the need for action on behalf of non home owner pensioners who have no other source of income and little wealth.

    Hal Kendig

  4. Black cat says:

    Yet another reason to include the family home in calculating eligibility to state pension. Our taxes would go a lot further if we target the poor.

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