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Private pension income gap grows for retirees


There is a growing gap between the incomes of those retiring with private pension income and those without, according to new analysis.

Between 1977 and the financial year ending 2016, the disposable income of retired households increased at an average annual rate of 2.8% after taking into account inflation and changes to household composition, the Office for National Statistics said.
By 2016, retired households with a private pension had disposable incomes that were around 1.6 times higher than those that relied on the state pension.
The average disposable income of households with private pension income has increased in real terms from £10,600 in 1977 to £27,800 last year.
During the same period, the average household disposable income for those without a private pension has increased from £7,600 to £17,200.

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The figures prompted a warning for workers from Sir Steve Webb, a former pensions minister who is now director of policy at Royal London.
He said: “The big growth in pensioner incomes is driven by people retiring with good company pensions.
“But today’s workers are not building up pensions that are anywhere near as generous.
“Whilst pensioner poverty rates have dropped sharply this could go into reverse if today’s workers do not build up their own pensions at a much faster rate than they are at present.”
Those in the pensions industry had similar warnings.
Tom Selby, a senior analyst at AJ Bell, described the figures as “a stark reminder of the impact failing to save for retirement can have”.
He said that, while automatic enrolment into workplace pensions would help, making the minimum contribution would not be enough to cover most people’s retirement costs.

Steven Cameron, pensions director at Aegon, said that with a rising state pension age and an ageing population, we are likely to see more “individual responsibility given to people to support themselves in their old age”.
David Newman, head of pensions at Close Brothers Asset Management, said: “Gold-plated final salary pensions have been instrumental in boosting incomes over the past 40 years.
“For young people in particular, putting aside as much as they can reasonably afford each month, and benefiting from employer contributions over the course of a career, will make a difference.”

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In 1977 just over a fifth of retired households had annual disposable income of more than £10,000 (after accounting for inflation and household composition). By last year, this had surged to 96% of retired households.
More than half of that increase was due to an increase in private pension income, which has risen nearly seven-fold during that time.
And, while inequality between retired households has increased in recent years, the gap remains “small relative to increases in income inequality for retired households seen throughout the 1980s,” the ONS said.
The 2.8% average annual increase in disposable income for retired households also compares well with the 2.1% seen in non-retired households.
Dr Anna Dixon, Chief Executive at the Centre for Ageing Better said that those with a private pension have disposable income 60% higher than those without.
She added: “This highlights the significant financial inequalities that can accumulate across a lifetime and are most acutely felt in later life.
“Being in fulfilling work for longer as well as saving more can help people improve their future financial security. We want to see more age-friendly employers and measures to help people back in to the labour market if they wish to work for longer.”

Source: Sky

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