Private pensions have provided a welcome £12,500 boost to retired households, data from the Office for National Statistics has revealed today. The percentage of households drawing income in retirement from a workplace pension or SIPP has also boomed – up from just 45% in 1977 to 79% today.
Private pensions are the biggest contribution to the average retired household - £12,500 of the average income of just shy of £30,000. The State Pension makes up around £10,000 of this total today. Twenty years ago, the State Pension and private pensions were more equally weighted as part of retired households’ income, although the total was much lower at just shy of £20,000, adjusted for inflation. Looking back further to 1977, total household income in retirement was just over £10,000 – and the State Pension made up the bulk of this.
“Although state pension income has almost doubled over this period, over half of the increase in the gross income of an average retired household is due to an increase in private pensions income which is around seven times as high in 2015/16 as it was in 1977,” the ONS reveals.
As private pension pay-outs have soared, the gap between the haves and the have notes has widened. It means that those in retirement today who are not in receipt of a private pension are considerably worse off today than they were thirty years ago.
In 1977, the average income for a retired household without a private pension was £25 a week, while those with a private pension received £125 a week - adjusted for inflation. Today that gap is 14 times larger – with those without a private pension on a similar income level of £25 a week, while those with a private pension receive a household income of more than £350.
Steven Cameron, Pensions Director at Aegon said: “Pensioners in the UK have never been better off financially than they are today. In the last 40 years, the average pensioner has catapulted out of the lowest income bands, and has even begun to close the gap on average incomes received by the working population.
“But anyone who wants to ensure that they have sufficient income for a comfortable retirement and the means to supplement social care costs in old age should consider talking with a financial adviser to review both their workplace and private pension provision.”
Pensions Gap Set to Worsen
David Newman, Head of Pensions at Close Brothers Asset Management said that these statistics hid a more uncomfortable truth – pensioners have never had it so good, and for younger people there will be even greater struggles ahead.
“Gold-plated final salary pensions have been instrumental in boosting incomes over the past forty years. But as life expectancies rise, the financial burden for the State becomes unsustainable, and the most lucrative defined benefit pension schemes become a thing of the past, the question is: what next for younger generations?” he posed.
“Auto enrolment has meant that more people now are saving into pensions, but saving the bare minimum will not guarantee the next wave of retirees will have such strong incomes in retirement.”
