Are pen­sion­ers re­ally the wealth­i­est?

By Mar­garet Tay­lor Per­sonal fi­nance edi­tor

Sunday Herald - - 19.03.17 YOUR MONEY -

NOT SO long ago a re­port from the Res­o­lu­tion Foun­da­tion, an in­de­pen­dent think tank that aims to im­prove the stan­dard of liv­ing of low and mid­dle-earn­ing fam­i­lies, high­lighted that the av­er­age pen­sioner house­hold is now bet­ter off than the av­er­age work­ing-age one. The re­port, As Time Goes By, found that pen­sioner in­comes had grown by 30 per cent since 2001, largely as a re­sult of many over-65s own­ing their own home, re­ceiv­ing a gen­er­ous pri­vate pen­sion and also con­tin­u­ing to work. The net ef­fect was that pen­sioner house­holds now have £20 a week more in in­come than work­ing-age ones.

How­ever, while this could be taken as ev­i­dence of an in­ter­gen­er­a­tional di­vide that sees the older pop­u­la­tion bask in a re­tire­ment paid for by gen­er­ous em­ployer-funded fi­nal salary pen­sions while younger peo­ple toil for low pay while also hav­ing to save for their own re­tire­ment, it does not tell the whole story.

In­deed, as the gov­ern­ment’s lat­est Pen­sion­ers’ In­come Se­ries has high­lighted, while the av­er­age in­come of all UK pen­sion­ers has in­creased from £258 a week in 2005-06 to £296 in 2015-16, there is a wide dis­par­ity within that group, with older pen­sion­ers typ­i­cally hav­ing lower in­comes than younger ones.

“Both re­cently re­tired pen­sion­ers and pen­sion­ers where the head [of the house­hold] was un­der 75 had higher av­er­age in­comes than those where the head was 75 or over,” the re­port said.

“In both 2005-06 and 2015-16 the weekly av­er­age in­come of pen­sion­ers who were 75 or over was 75 per cent of that of un­der 75s. The ra­tio of older to younger pen­sioner in­comes has re­mained con­stant. The in­come dif­fer­ence be­tween these age groups is not sur­pris­ing. Firstly, younger pen­sion­ers were more likely to be in work, re­flect­ing mean gross in­come from earn­ings of £134 per week where the head is un­der 75.

“Se­condly, younger pen­sion­ers were more likely to have ben­e­fited from the peak of oc­cu­pa­tional scheme sav­ings in the late 1960s.”

Steven Cameron, pen­sions di­rec­tor at in­surer Ae­gon, said the data backs up the no­tion that “to­day’s re­tirees are set to be the wealth­i­est we’ve ever seen” al­though he stressed that grow­ing in­comes for the re­cently re­tired does “not nec­es­sar­ily mean their re­tire­ment pot is in bet­ter health than those that have gone be­fore them”.

“Re­tire­ment is be­com­ing more of a phase, and many are choosing to con­tinue to work be­yond re­tire­ment age to sup­ple­ment in­come from pen­sions,” he said.

For Steve Webb, di­rec­tor of pol­icy at in­surer Royal Lon­don and a for­mer Lib­eral Demo­crat MP who served as pen­sions min­is­ter in the coali­tion gov­ern­ment, some of the other fig­ures pub­lished in the re­port are “star­tling” be­cause they “chal­lenge the no­tion that pen­sion­ers will in­evitably get richer and richer”.

“Pen­sioner in­comes in 2015-16 were no higher than a year ear­lier and newly re­tired pen­sion­ers were ac­tu­ally less well off than the year be­fore,” he said.

“In ad­di­tion, more than half of all pen­sion­ers get the ma­jor­ity of their in­come from state pen­sions and ben­e­fits. While there are clearly some pen­sion­ers who en­joy good com­pany pen­sions and have ben­e­fited from house price in­fla­tion, there are clearly also many who are not in such a for­tu­nate po­si­tion.”

Jamie Jenk­ins, head of pen­sions strat­egy at pen­sions gi­ant Stan­dard Life, agreed, point­ing out that it is in­cor­rect to as­sume all cur­rent pen­sion­ers are liv­ing off large fi­nal salary ben­e­fits. “The re­al­ity is that some baby boomers may have been in a nice fi­nal salary scheme if they worked for a large em­ployer, but if you worked for a small em­ployer you prob­a­bly have noth­ing,” he said.

“Auto-en­rol­ment [which has re­quired all em­ploy­ers to en­rol their staff into a con­trib­u­tory pen­sion scheme] has shown that be­cause the vast ma­jor­ity of em­ploy­ers didn’t have any ar­range­ments in place. What you’ve got with baby boomers is haves and have nots.”

Al­though those ap­proach­ing re­tire­ment age with no sav­ings may as­sume it is too late to start build­ing up a pen­sion pot, Jenk­ins said any amount that can be used to sup­ple­ment the state pen­sion is worth putting aside.

“There’s a lost gen­er­a­tion of peo­ple who weren’t in a fi­nal salary scheme and didn’t save pri­vately who are now get­ting picked up by auto-en­rol­ment,” he said.

“There is ev­i­dence of older peo­ple opt­ing out [of auto-en­rol­ment] on the ba­sis that it’s too late. It might be too late to build up an ad­e­quate pen­sion pot, but if you can save £20,000 that’s not unim­por­tant.”

For the younger gen­er­a­tion, be­ing au­to­mat­i­cally en­rolled in a work­place pen­sion takes away some of the pres­sure of hav­ing to think about sav­ing for re­tire­ment.

How­ever, with the gov­ern­ment re­quir­ing min­i­mum con­tri­bu­tions of just two per cent of salary at the mo­ment, with the to­tal ris­ing to eight per cent – three of which will come from em­ploy­ers – in 2019, the like­li­hood that they will save enough to fund a com­fort­able re­tire­ment on the min­i­mum alone is slim.

While the av­er­age in­come of all UK pen­sion­ers has in­creased from £258 a week in 2005-06 to £296 in 2015-16, there is a wide dis­par­ity with older pen­sion­ers typ­i­cally hav­ing lower in­comes than younger ones

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