Shrinking family sizes, higher inequality over working lives, and reforms that have reduced pension incomes mean younger generations will face greater risks of inequality in old age than current retirees, according to a report from the Organization for Economic Co-operation and Development (OECD).
According to the report, “Preventing Ageing Unequally,” the rate at which the population across the OECD countries are aging is rapidly increasing. It said there were only 20 people aged 65 and over for every 100 of working age across the OECD in 1980. This figure rose 40% to 28 by 2015, and is projected to increase by 89% over the next 35 years to 53 in 2050.
“The future elderly will be in more diverse situations,” said the OECD. “People will live longer, but more will have been unemployed at some point in their working lives and earned low wages, while others will have enjoyed higher, stable earning paths.”
The report said that inequalities in education, health, employment, and income start from early ages. For example, it said a 25-year old university-educated man can expect to live almost eight years longer than a lower-educated peer, on average across OECD countries, while for women the difference is 4.6 years. It also said that at all ages, people in bad health work less and earn less than those in good health, and that over a career, bad health reduces lifetime earnings of low-educated men by 33%, while the loss is only 17% for highly-educated men.
“Low earners tend to have a lower life expectancy than high earners and this reduces further their total pensions,” said the report, adding that “raising the retirement age tends to widen inequality in total pensions between low and high earners.”
Gender inequality in old age is “likely to remain substantial,” according to the report, as women over 65 receive about 27% lower annual pension payments on average than men. It also said old-age poverty is much higher among women than men.
In emerging economies, inequality issues are even more acute, the report said, and pointed out that Brazil, China, and India are facing rapid ageing at a relatively early stage of development, have wider health inequalities than OECD countries, and a less effective social safety net.
To confront these issues, the OECD says that countries should focus on three main areas:
- Preventing inequality before it cumulates over time. Measures should include providing quality childcare and early education, helping disadvantaged youth into work, and expanding health spending on prevention to target at-risk groups.
- Mitigating entrenched inequalities. Health services should move to a more patient-centered approach, and employment services should boost efforts to help the unemployed back into work, as well as remove barriers to retain and hire older workers.
- Coping with inequalities at older ages. Well-designed first-tier pensions can limit the impact of socio-economic differences in life expectancy on pension benefits. Some countries have pension adequacy risks, especially for women. Making home care affordable and providing better support to informal caregivers would also help reduce inequalities in long-term care.