Lesson 7 — Population Ageing & Old-Age Income Security

Sources of income for elderly groups

Working elderly rely on wages, investment; retired rely on pensions, family.

ILO evidence on elderly adequacy

80% of global elderly lack adequate resources; US baby boomers save 1/3 of needs.

Factors worsening retirement adequacy

Decline in informal support, medical inflation, longer lives, weak labour markets.

Effect of rising life expectancy on adequacy

Longer lifespans stretch retirement resources, worsening adequacy.

Poverty-line method definition

Measures elderly adequacy by comparing income to ~66–67% of median household income.

Poverty-line method pros

Simple and objective to apply.

Poverty-line method cons

Relative measure; may overstate inadequacy in rich or unequal countries.

Elderly income vs GDP & CPI measure

Compares elderly income growth to real GDP and inflation to assess if elderly fall behind.

Elderly income ratio definition

Average elderly household income divided by average income of total population.

Meaning of falling elderly income ratio

Elderly are falling behind working-age population incomes.

Replacement rate definition

Post-retirement income divided by pre-retirement income.

Replacement rate adequacy benchmark

Around 70% replacement is considered adequate.

Replacement rate limitation

Cannot compare across households with different preferences, dependents, and living costs.

Why traditional support weakened

Industrialisation, mobility, and low fertility reduced family support reliability.

PAYG pension definition

Current workers finance benefits for current retirees.

PAYG sustainability issue

Ageing reduces workers per retiree, making PAYG fiscally unsustainable.

Self-funded pension definition

Individual accounts where benefits depend on personal contributions.

Self-funded system issues

Low earners save too little; transition for older cohorts extremely costly.

Pension reform: coverage

Goal of expanding pension system coverage to near 100% participation.

Pension reform: contributions

Raise contribution rates and restrict early withdrawals.

Pension reform: early retirement

Remove incentives that encourage early labour force exit.

Pension reform: retirement age

Increase legal pension eligibility age gradually.

Pension reform: multi-pillar systems

Shift toward mixed PAYG and self-funded pension structures.