A study by the Finnish Centre for Pensions reveals that unemployment before retirement on a disability pension increases the risk of poverty.
In the study, the income development of low-income retirees who retired on a disability pension in 2002 was examined six years before and after the retirement.
The starting point for this study was the observation that the income level of disability pension retirees was very low. This type of follow-up study is rare even in an international perspective.
The link between unemployment and poverty became evident in that the poverty rate of those who had been unemployed was multifold compared to those who had been employed. The low income level was more common both before and after retiring on a disability pension. In addition, those with a low income often had a low income already before retiring on a disability pension.
In addition to unemployment, having a low education level, being young, living alone, being a female and working as a self-employed person increased the threat of poverty.
According to Juha Rantala, Economist, the poverty level may weaken, remain unchanged or improve after retirement on a disability pension. It depends partly on how poverty is measured.
Two poverty limits were used in the analysis: one standing at 60 per cent of the entire population’s median income, and the other standing at 50 per cent of the median income. When using the 60-per-cent limit, risking poverty was twice as common among those retiring on a disability pension than when using the 50-per-cent limit. Using the lower limit, poverty remained unchanged or was even reduced after retirement.
The main problem, however, is how poverty is inherited at retirement. Hence, more attention should
The research data was based on a 10-per-cent sample of Statistic Finland’s register data of the Finnish population from 1995 to 2008.
Juha Rantala, Economist, Finnish Centre for Pensions, tel. +358 29 411 2251, e-mail Juha.Rantala(at)etk.fi.