A new generation of financially-secure retirees are driving income growth for a select few, new think tank analysis has revealed.
According to the Resolution Foundation, a “new cohort” of pensioners with occupational pensions and who own their own home are £20 a week better off than those who work. The trend reveals a reversal of fortunes in comparison to 2001, where pensioners were £70 a week worse off than those in work, amounting to a 30 per cent increase overall.
The report, As Time Goes By, tracked the scale of income growth across different generations over a fifty-year period. It found a significant change in living standards across Britain, with new retirees having a larger weekly income than those of working age, after housing costs.
But this “strong growth” does not suggest “a boom time” for all pensioners, the think tank warns: the majority of retirees have not reported a difference in their financial situation from year-to-year. Instead, the growth has been mainly driven by “successive waves” of more affluent pensioners.
Indeed, a typical pensioner income of someone turning 65 in 2014 was found to be just 7 per cent higher than their 2001 predecessors.
Sarah Hamilton, Senior Pensions Consultant at Aon Employee Benefits said: “It’s important to remember that current pensioners are likely to be among the last group to benefit from generous company pensions, such as final salary schemes. Going forward future generations are likely to face difficulty in saving enough towards retirement. The report also highlights that the increase in income reflects a rise in the number of retirees continuing to work. This is clearly something that will continue to increase in the future, more through necessity than desire, as future generations struggle to afford to retire.”
The think tank identified four key drivers of growth which have affected recent retirees and their pensions including occupational pensions, employment, benefits and housing. Occupational pensions in particular, are described as the ‘biggest single source of rising pensioner incomes’ and amount for over a third of gross pensioner income growth since 2001. Meanwhile, the shift from rented accommodation to home ownership has reduced housing costs and “boosted” disposable incomes, whilst the value of a typical pensioner’s benefit income has increased by 8 per cent since 2001.
Those in “richer pensioner households” have particularly benefitted from these growth sources, the report said.
Adam Corlett, Economic Analyst at the Resolution Foundation commented: “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 own home and have generous private pension wealth than any previous generation.”
“Not all pensioners can draw on these income sources, which is why the state pension will always be the main income for many pensioners. We can’t assume either that young people today will be able to drawn upon the kind of wealth that recent pensioners have accumulated, given the recent fall in home ownership and decline in generous defined benefit schemes. 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.”
Hamilton added: “Whilst the government has taken steps, through auto-enrolment, to increase the number of individuals saving towards retirement, thought needs to be given to make the pension system less complex to help encourage individuals save more towards retirement and avoid individuals opting out of pension provision when the minimum contribution rates increase in 2018 and 2019.”