Average disposable income is increasing at a faster rate for retirees than for people of working age in the UK, as Britain’s once-generous occupational pension schemes mature, according to an analysis published on Tuesday.
However, the study — which considered pensioners’ living standards during the past 40 years and was published by the Office for National Statistics — showed that the growing role of private pension income has contributed to widening inequality among pensioners.
Between 1977 and 2015-16, the disposable income of retired households increased on average by 2.8 per cent a year, after accounting for inflation and changes to household composition, compared with average annual growth among non-retired households of 2.1 per cent.
Overall, this has contributed to a sharp fall in pensioner poverty. In 1977, pensioners were more than twice as likely to be in poverty as the population as a whole. They now face roughly the same chance of living in poverty as the general population.
But experts warned that the trend, which has been driven by rapid growth in private pension income, may not continue.
“In previous generations being elderly was a byword for being poor,” said Steve Webb, director of policy at insurers Royal London, who was pensions minister in the coalition government.
“That has changed dramatically in the last 40 years . . .[but] the big danger is that we are living off former glories,” he added. “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.”
The average gross income of retired households was £29,000 in 2016, almost three times higher in real terms than in 1977. This compares with the gross income of working age households, which more than doubled during the same period to reach £41,900 in 2015-16.
The spread of private pensions explains more than half of the rapid growth in pensioner incomes. In 1977, 45 per cent of pensioner households received an income from a private pension. By 2015-16, this had risen to 79 per cent of pensioner households. The average private pension income received by those households quadrupled over the period.
But in the years since the financial crisis, while pensioner incomes have risen overall, people who rely solely on the state pension and other benefits have fallen behind, starting to reverse a decline in inequality among pensioners that began in the early 1990s.
Meanwhile, inequality among working-age households has been fairly stable in recent years and remains below pre-2008 crisis levels. Lower-income households have tended to benefit from strong employment growth since the recession, while sluggish growth in earnings has constrained income growth for higher-income households.