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state pension

ESRI: Those who live alone are at greater risk of falling below the poverty line when they retire

Researchers examined whether soon-to-be pensioners will have adequate income in retirement.

PEOPLE WHO LIVE alone are at a greater risk of falling into poverty in Ireland once they reach retirement age, according to a new study. 

Published this morning by the Economic and Social Research Institute (ESRI), the report examines whether people currently aged between 60 and 65 will have adequate income when they reach 66, the state pension age.

ESRI researchers found that “those who are not married or cohabitating in the years before retirement stand out as being at risk of both replacing a small share of previous earnings and of falling below the official at-risk-of-poverty line”.

Traditionally, the metric used to analyse income adequacy in retirement is called the ‘income replacement rate’, the ratio of an individual’s post-retirement to pre-retirement earnings.

This calculation — which the report’s authors note has been “at the forefront of pension policy debates in Ireland” — suggests that 20% of current 60-65-year-olds will be at risk of replacing under half their individual earnings once they do retire. 

That falls to just 17% when other income from financial assets and investments are included.

But a different ratio produces troubling results.

In addition to measuring individual earnings, the report’s authors measured levels of household disposable income for people who are just about to reach the State pension age.

The report explains that “measures of household disposable income (rather than individual earnings) are arguably more reflective of the resources available to an individual before retirement and thus of how adequately… they will be able to replicate those standards of living in retirement”.

Analysing the figures in that way suggests that between 50% and 60% of individuals could be at risk of having an inadequate income in retirement.

Those who live alone are particularly vulnerable.

Single pensioners are 1.4 times more likely than those who are married or cohabitating to have income in retirement that falls below the national poverty line, 60% of the national median income. 

Last year as part of Budget 2020, the government unveiled an additional payment, the ‘Living Alone’ allowance, for State pensioners who live alone.

The ESRI report concludes that the allowance “could be a particularly well-targeted instrument for addressing concerns about income adequacy in retirement among those approaching the State pension age.

“It could provide a means of targeting increases in the state pension at those who appear, across all benchmarks, to be at greatest risk of having inadequate income in their retirement.

Commenting on the findings, Dr Barra Roantree, an ESRI economist and one of the report’s co-authors, said: “Our research shows that those at risk of poverty in retirement may be overlooked by income adequacy targets that are based on previous earnings, which have been to the forefront of government policy in recent decades.

“This suggests that policymakers should take a broader range of measures into account when considering who is at risk of having inadequate income in retirement.”

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