Study Indicates Pensions Reduce Poverty

July 30, 2009 ( - Defined benefit pension income plays a critical role in reducing the risk of poverty and hardship among older Americans, according to a new study.

The study found rates of poverty among older households lacking pension income were about six times greater than those with such income. The analysis also found that pensions reduce – and in some cases eliminate – the greater risk of poverty and public assistance dependence that women and minority populations otherwise would face.

The Pension Factor report authored by Dr. Frank Porell, Professor of Gerontology at the McCormack Graduate School of Policy Studies at the University of Massachusetts-Boston, and Beth Almeida, Executive Director at the National Institute on Retirement Security, says pensions have helped substantial numbers of older Americans avoid material hardships associated with inadequate food, shelter, and health care, and also avoid reliance on public assistance.

More specifically, key findings of the study indicate that pension receipt among older American households in 2006 was associated with:

  • 1.72 million fewer poor households and 2.97 million fewer near-poor households;
  • 560,000 fewer households experiencing a food hardship;
  • 380,000 fewer households experiencing a shelter hardship;
  • 320,000 fewer households experiencing a health care hardship;
  • 1.35 million fewer households receiving means-tested public assistance; and
  • $7.3 billion in public assistance expenditures savings, representing about 8.5% of aggregate public assistance dollars received by all American households in 2006 for the same benefit programs.

According to the report authors, several distinctive features of DB pensions contribute to its effect on poverty. First, eligible employees are automatically included in DB plans and do not face decisions about whether to participate, how much to save, and how to invest the savings. Second, DB plans better protect retirement wealth from pre-retirement “leakages” due to borrowing or pre-retirement withdrawals. Third, DB pension recipients cannot outlive their retirement benefits, and a spouse’s access to this pension income is protected after one’s own death.

“Because of these unique features of DB pension plans, older American households with pension income should have greater economic security than their counterparts without such income,” the report said.

The analysis in The Pension Factor was conducted using the U.S. Census Bureau’s Survey of Income Program Participation (SIPP) panels from 1996, 2001, and 2004. The study sample included SIPP respondents age 60 years or older and all households with a head age 60 and older, who had records in both the Pension and Adult Well-Being topical modules of the survey, totaling 10,259 households.

Although there have been dramatic declines in DB pension plan participation among private sector workers since the early 1980s, a new study from the McCormack Graduate School of Policy Studies at the University of Massachusetts-Boston and the National Institute on Retirement Security suggests that these declines in plan participation have not yet produced sharp declines in rates of actual DB pension income receipt among older Americans. A fairly modest decline is observed in the percentage of persons aged 60 or older receiving DB pension income between 1998, only about two to three percentage points, the study report says.

DC income receipt rates were much lower than the receipt rates of both DB and Social Security income, and the rate of Social Security income receipt was highest among the three sources of retirement income. While the mean annual income received was greatest for DC income recipients and lowest for Social Security income recipients, these rankings are reversed when median amounts received are considered.

Since many workers affected by the shift toward DC plans over the last two decades may have not yet retired from the labor force, future data may show more marked declines in DB pension receipt, the report authors speculate.

Who's Getting Pension Income

Older men are nearly twice as likely as women to report DB pension income from a former employer (42% vs 23%) and the amounts received are substantially larger as well. The mean annual pension from a former employer among older men of $18,040 is more than 40% greater than the mean of $12,589 among women, the study found.

Private DB pension recipients greatly outnumbered public DB pension recipients in 2006. Almost 71% of DB pension recipients in 2006 received some private pension income, either alone (63.7%), or with public pension income (7%). A little more than 36% of DB pension recipients received some public pension income, either alone (29.2%), or with private pension income (7%).

However, the study found public DB pension recipients generally received far greater annual pension income than their private DB pension recipient counterparts. The mean and median annual amounts of pension income of $21,916 and $18,563 among recipients with only public pensions were roughly two times greater than the mean ($11,183) and median ($7,782) amounts received by DB pension recipients with only private pensions in 2006.

Additional data and analysis is available in the full research brief available at .

The study findings are contained in a new report, "The Pension Factor: Assessing the Role of Defined Benefit Plans in Reducing Elder Hardships," authored by Dr. Frank Porell, Professor of Gerontology at the McCormack Graduate School of Policy Studies at the University of Massachusetts-Boston, and Beth Almeida, Executive Director at the National Institute on Retirement Security.