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The Actuary The magazine of the Institute & Faculty of Actuaries

Pensioners now better off than working people for the first time

The typical UK pensioner household income is now £20 a week more than the average working-age one, according to a report from the Resolution Foundation released today.

Increasing disposable income for pensioners ©Shutterstock
Increasing disposable income for pensioners ©Shutterstock

As Time Goes By reveals a drastic change in British living standards since 2001, when working-age incomes were £70 more each week on average than pensioner ones, which have grown by over 30% during that time.

This is thought to be largely due to a higher proportion of pensioners still in work, owning a home, and receiving generous private pensions, in comparison to their predecessors.

Resolution Foundation economic analyst, Adam Corlett, said: “Typical pensioner household incomes overtaking working-age households for the first time has led some to assume that all pensioners are enjoying some kind of boom amid the painful squeeze for everyone else.

“The reality is quite different – the incomes of individual pensioners grow relatively slowly, particularly once they’ve stopped working.

“Instead, the main driver of pensioner income growth has been the arrival of successive new waves of pensioners, who are more likely to work, own their home, and have generous private pension wealth, than any previous generation.”

The research shows that the biggest single source of pensioner income growth this century has been the rise in number of people in private pension schemes, with a typical pensioner now receiving over £5,000 of annual occupational pension.

Next is the increasing amount of pensioners who work, with the number of pensioner households with at least one working person rising from one in eight in 2011, to nearly one in five.

This is followed by home ownership, with 73% of pensioners currently owning a home compared with 64% in 2011, as the shift away from social rented accommodation reduces housing costs and increases disposable income, while the value of the typical pensioner’s benefit income has increased by 8%.

However, these trends are not expected to continue, with millennials increasingly less likely to have access to defined benefit (DB) pension schemes, coupled with falling home ownership among the working population.

“We can’t assume that young people today will be able to draw upon the kind of wealth that recent pensioners have accumulated, given the fall in home ownership and decline in generous DB schemes,” Corlett continued.

“The big challenge we face as a society is to ensure that the record incomes that a new generation of pensioners are enjoying are not a one-off gift, and can endure for future generations too.”

The report states that the scale of private pension income for future generations is dependent on the continued success of auto-enrolment in driving up occupational pension saving.