Ageing, income and living standards: evidence from the British Household Panel Survey

Abstract

ABSTRACTIn Britain, older people have lower average incomes and a higher risk of income poverty than the general population. Older pensioners are more likely to be in poverty than younger ones. Yet certain indicators of their living standards suggest that older people experience less hardship than expected, given their incomes. A possible explanation is that older people convert income into basic living standards at a higher rate than younger people, implying that as people age they need less income to achieve a given standard of living. Much existing evidence has been based on cross-sectional data and therefore may not be a good guide to the consequences of ageing. We use longitudinal data on people aged at least 50 years from theBritish Household Panel Surveyto investigate the effects of ageing on the relationship between standard of living, as measured by various deprivation indices, and income. We find that for most indices, ageing increases deprivation when controlling for income and other factors. The exception is a subjective index of ‘financial strain’, which appears to fall as people age. We also find evidence of cohort effects. At any given age and income, more-recently-born older people in general experience more deprivation than those born longer ago. To some extent these ageing and cohort effects balance out, which suggests that pensions do not need to change with age.