How are private pensions associated with income inequality among retired elderly?
It is often assumed that the expansion of private pensions is likely to increase income inequality among retired elderly. But in countries where private pensions have expanded the most, income inequality has not. This is one of the results of a new dissertation in sociology at SOFI.
In her dissertation “Old and Unequal? An Institutional Analysis of Pension Systems' Driving Forces and Outcomes in Affluent OECD Countries”, Laure Doctrinal, newly appointed PhD in sociology, examines the association between private pensions’ expansion and changes in income inequality in nine European countries.
– Countries in which there are larger shares of private pensions in retirement incomes tend to display higher levels of income inequality, and higher poverty levels as well. I analyze how different components in retired people’s income have changed over time – and how this relates to increased or decreased income inequality among the retired population, said Laure Doctrinal.
Few studies have observed this interplay empirically over time. Doctrinal’s study compares income data and income inequality levels for the retired population between 1986 and 2018, and analyses how the share and distribution of private pensions and other income components changed.
Between these two years, the share of private pensions increased in almost all the countries, and private pensions became in general more equally distributed.
Income inequality is compensated by other components
As expected, the results show a connection between private pensions and increased inequality. Private pensions also remained more unequally distributed than public pensions.
But to Laure Doctrinal’s surprise, overall income inequality in these countries has not increased:
– I found that the inequality-increasing effect of private pensions is compensated for by the effect of other income components. In some countries it’s because public pensions have become more equally distributed, in others, this relates to decreasing shares of capital income which are more unequally distributed than private pensions, and this compensates somewhat the effect of private pensions.
This result highlights the interplay between private pensions and other income sources. Doctrinal stresses the importance of considering these components for understanding the trends in income inequality among the retired.
She suggests the relevance of looking beyond the pension policies and of using other instruments – particularly tax policies – to address inequality within this group.
– There is no clear evidence that private pensions contribute to more inequality. If one is to understand how it works, one needs to see the whole picture. It’s not enough to look at private pensions – you need to consider the other income components and how they are changing.
Last updated: March 28, 2023
Source: SOFI