The proportion of elderly people living in severe poverty in the UK is five times what it was in 1986, the largest increase among western European countries, according to a new study.
The rise, from 0.9% of the elderly population to around 5%, is attributable to Britain’s state pension system and its “low basic payments and means-tested supplements”, says the author of the report, Pension Reforms and Old Age Inequalities in Europe.
Professor Bernhard Ebbinghaus, of the University of Oxford, will tell a European Sociological Association conference this week that the UK is one of five countries out of 16 that he has studied where there has been an increase in people aged 65 and over who are living in “severe poverty”, which is defined as having an income of 40% or less of the median average.
“The United Kingdom is a good example of the Beveridge-lite systems that have historically failed to combat old-age poverty,” Ebbinghaus said. “These have rather ungenerous basic pensions with means-tested supplements, and this reproduces relatively high severe poverty rates among the elderly. British basic pensions are particularly low, 16% of average earnings, and require a long contribution period. Income-tested or means-tested targeted benefits are needed to supplement basic pensions and to lift them out of severe poverty – every sixth British pensioner receives such additional benefits.”
Using data from the Luxembourg Income Study, which spans several decades, Ebbinghaus found that:
• In the mid-1980s about 1% of those aged 65 and over in the UK were living in severe poverty, putting it equal-lowest in poverty rates of 16 western European countries. In France it was 12% and in Germany 6%.
• By 2008, the proportion had risen to 6%, making the UK fourth-equal highest. Only Switzerland, Ireland and Spain were higher.
• Over the following eight years, the proportion dipped slightly but remained at just under 5%.
Ebbinghaus said the UK compared unfavourably with many other countries: “The lowest poverty rates among older people are found in the relatively generous Dutch basic pensions and Nordic welfare states, while the UK, but also Ireland and Switzerland, with basic old-age security, had the highest poverty rates.”
Even when private pensions were taken into account, the UK continued to fare poorly, Ebbinghaus said: “The public-private mix puts many elderly at risk as they lack sufficient supplementary earnings-related pensions.”
He contrasted the UK system, with its flat-rate basic pension, with the “Bismarckian” system used in Germany and several other European countries, where mandatory pension contributions are based on earnings. “A comparative analysis of poverty rates in old age reveals that Beveridge basic security is not always capable of effectively reducing poverty despite the explicit purpose of doing so, while some contributory Bismarckian systems are better suited to reducing poverty, despite focusing on status maintenance,” he said.
Ebbinghaus also studied those aged 65 and over who can be classed as “better off”, meaning that they have an income of 60% or more of the median average. Around 20% of the UK’s elderly met this criterion, closer to the average for western Europe.
The research found that, overall, those European countries that had made private pensions an important source of income for the elderly had seen a rise in financial inequality. “The comparison shows that the shift toward increasing privatisation amplifies the already existing level of social inequality,” Ebbinghaus said.
“As welfare states have been challenged by the financial and economic crises of the 2000s, individuals relying on funded pensions have also faced volatile financial risks,” he said. “The adequacy of retirement income has often been neglected from current debate, partly because poverty in old age seemed no pressing concern in advanced welfare states – until recently.”
UK elderly suffer worst poverty rate in western Europe – The Guardian