"The big danger is that we are living off former glories. The big growth in pensioner incomes is driven by people retiring with good company pensions."
The income of the average retired household has been growing at a faster rate over the last 40 years than the average non-retired household, though in 2016 it still remains below the average income of a non-retired household.
In 1977 only around a fifth of retired households had a disposable income of over £10,000 a year, but by 1986 this had increased to half. In 2015/16, more than 95% of retired households had disposable income above £10,000.
However with a growing number of retired households increasingly relying on income from private pensions, the gap between the incomes of those who have private pensions and those who don’t is increasing and inequality of income among retired households has shown small increases in recent years.
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.
Nigel Waterson, Chairman of the Equity Release Council, commented: “The latest figures reveal the extent to which people have become reliant on private pensions as a source of income in retirement, with data suggesting that private pensions alone were responsible for over half of the increase in the income of retired households between 1977 and 2016.
“However such a reliance is a concern when the future viability of workplace pensions as a source of retirement income is assessed. Recent findings from The Equity Release Council highlighted that those on defined contribution schemes making contributions of 8% throughout their working life, can expect to retire with a pension of only 15% of their final salary – only one fifth of the pension of an identical worker in a DB scheme. As a result, millions will face severely reduced retirement incomes.
“At the same time, older Britons have seen huge increases in the value of their homes, with total homeowner equity in England owned by over-55s reaching £1.8 trillion in 2016. If the next generation of retirees are to enjoy a more comfortable way of life in retirement, it is vital that housing wealth is taken into account when planning retirement.”
Steve Webb, Director of Policy at Royal London, added: "In previous generations being elderly was a by-word for being poor. That has changed dramatically in the last forty years with pensioner incomes nearly trebling whilst the incomes of the work age population rose much more slowly.
"The big danger is that we are living off former glories. 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."
