Pensions are associated with a fall in the poverty rate
12.4 per cent of people who received pensions in 2020 were living in monetary poverty during the year prior to their retirement. This proportion fell to 8.3 per cent during their first full year of retirement, representing a decrease of 4.1 percentage points. This pattern holds steady across all cohorts of new pensioners from 2012 to 2020, with the decline ranging between 3.2 and 4.7 percentage points depending on the year.
However, inequalities between categories persist after retirement
The fall in the poverty rate following retirement is observed across all groups of new pensioners, regardless of their employment status prior to retirement or their retirement conditions. Consequently, disparities between the different categories of new pensioners (based on their socio-demographic characteristics, their retirement conditions or their situation immediately prior to retirement) persist: although their risk of poverty decreases in absolute terms, those who had a higher risk of poverty immediately before retirement still face a relatively higher risk than others after retirement.
For example, the fall in the poverty rate is of a similar magnitude for new pensioners who have reached the full pension rate on the basis of a sufficiently long working life and for those who have reached it by retiring at the age at which the reduction is waived (4.8 points and 6.3 points respectively), even though the former had, prior to retirement, a poverty rate 13 points lower than that of the latter. The gap therefore remains almost as wide once in retirement.
Inequalities are reduced, but individual positions on the living standards scale change only moderately
Overall, whilst retirement does reduce income inequalities between individuals compared with the situation at the very end of their working lives, this reduction remains moderate in scale, and retirement has little effect on individuals’ positions on the living standards scale. Whilst the proportion of people living in poverty does fall by 4.1 percentage points, the proportion of people with a modest standard of living – that is, those whose standard of living lies between 60 per cent and 90 per cent of the median standard of living – rises by a similar margin (+3.9 points). Conversely, the proportion of people considered well-off or fairly well-off in terms of their standard of living decreases, in favour of those with a median standard of living, but this decline is moderate, in the region of 6 percentage points.
Half of new pensioners ultimately remain in the same standard of living category before and after retirement, whilst 41 per cent move into an adjacent category. Those who change category are divided almost evenly between those whose standard of living improves and those for whom it declines: 22 per cent of new pensioners move into a higher standard-of-living group after retirement, whilst 28 per cent of them move into a lower category.
A relatively stable standard of living
For half of those still in employment before retirement, the pension amount is more than 25 per cent lower than their final income from work (known as the median change). However, the decline appears less pronounced when considering the newly retired person’s total pre-tax household income (median decline of 14 per cent), and even less so when considering their standard of living (median decline of 9 per cent). Just over a third (35 per cent) of those in employment immediately before retirement even see their standard of living rise upon retirement.
The majority of people who left the labour market early see both their personal income and their standard of living rise after retirement. The median increase in standard of living is thus 9 per cent among those who were unemployed before retirement and 4 per cent for those who were on disability benefits.
