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.
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.