Income adequacy in retirement: Evidence from the Irish longitudinal study on ageing (TILDA)

Abstract

The mission of the Economic and Social Research Institute is to advance evidencebased policymaking that supports economic sustainability and social progress in Ireland. ESRI researchers apply the highest standards of academic excellence to challenges facing policymakers, focusing on 12 areas of critical importance to 21st Century Ireland. The Institute was founded in 1960 by a group of senior civil servants led by Dr T.K. Whitaker, who identified the need for independent and in-depth research analysis to provide a robust evidence base for policymaking in Ireland. Since then, the Institute has remained committed to independent research and its work is free of any expressed ideology or political position. The Institute publishes all research reaching the appropriate academic standard, irrespective of its findings or who funds the research. The quality of its research output is guaranteed by a rigorous peer review process. ESRI researchers are experts in their fields and are committed to producing work that meets the highest academic standards and practices. The work of the Institute is disseminated widely in books, journal articles and reports. ESRI publications are available to download, free of charge, from its website. Additionally, ESRI staff communicate research findings at regular conferences and seminars. The ESRI is a company limited by guarantee, answerable to its members and governed by a Council, comprising 14 members who represent a cross-section of ESRI members from academia, civil services, state agencies, businesses and civil society. The Institute receives an annual grant-in-aid from the Department of Public Expenditure and Reform to support the scientific and public interest elements of the Institute's activities; the grant accounted for an average of 30 per cent of the Institute's income over the lifetime of the last Research Strategy. The remaining funding comes from research programmes supported by government departments and agencies, public bodies and competitive research programmes.

Future trends in housing tenure and the adequacy of retirement income

“…Much of the existing work in this area in the Irish context has focused on the extent to which those who are either already retired or very close to retirement are at risk of inadequate incomes in retirement (Beirne et al, 2020;Bercholz et al, 2019;Nivakoski, 2014;Nivakoski and Barrett, 2019). While assessments of retirement income adequacy are sensitive to the measure of adequacy adopted, and the definition of retirement income, the most recent Irish estimates suggest that approximately 9 per cent of those approaching the state pension age (SPA) over the period 2022-2027 would be at risk of poverty using the 60 per cent of median household disposable income poverty threshold, based on a definition of retirement income that includes state and supplementary pension income, as well as non-primary residence asset income (Beirne et al, 2020).…”

“…In this context, a recent study attempted to move beyond a single replacement rate to consider multiple indicators of retirement income adequacy, varying not only the definition of income, but also the benchmarks used to assess adequacy. Beirne et al (2020) used data from TILDA on the cohort of people born between 1955 and 1960 (and therefore expected to reach the state pension age over the period 2022-2027) to assess the adequacy of their projected income in retirement, using a variety of different benchmarks and definitions of retirement income. 5 The analysis found that assessments of income adequacy in retirement were very sensitive to the benchmark used.…”

“…by downsizing, equity release, or through family arrangements whereby younger family members provide support to older family members in return for an explicit or implicit promise of an eventual bequest). Banks et al (2005), Crawford and O'Dea (2012) and Beirne et al (2020) all considered the role of owner-occupied housing wealth in their assessments of retirement income adequacy in England and Ireland, by examining the extent to which these assessments were affected by the inclusion of half the annuitised value of owner-occupied housing wealth in the definition of retirement income. Dewilde and Raeymaeckers (2008) used data from the 2001 European Community Household Panel (ECHP) to test the idea that housing policies can reduce poverty in later life by promoting outright ownership, which in turn provides a 'hidden' source of income (also addressed using earlier data by Fahey et al, 2004a).…”

“…We build on an existing model of retirement income adequacy developed at the ESRI to assess the impact of housing costs on retirement income adequacy. This model, TRIAM, uses data from the Irish Longitudinal Study on Ageing (TILDA) to simulate the incomes in retirement of a cohort of individuals born between 1955 and 1960 (who can expect to reach the state pension age (SPA) of 67 between 2022 and 2027) (Beirne et al, 2020). 10 The model uses similar data and methods to those used in the UK to assess retirement income adequacy (Banks et al, 2005;Crawford and O'Dea, 2012).…”

Options for raising tax revenue in Ireland

“…27 In any case, Adam et al (2013) point out that double taxation is inherent to the taxation of wealth transfers, with CGT designed to serve an entirely different purpose (the taxation of the returns to saving) and no equivalent relief for income tax already paid on gifts or bequests. Exempting assets transferred at death from CGT creates an extremely strong incentive for older individuals to hold on to assets, such as investment properties, until death in order to bequest them tax-free to children, potentially contributing to lower levels of living standards and higher rates of poverty through retirement (Beirne et al, 2020).…”