According to part two of Canada Life’s inaugural Retire UK report, retirees have increased their spending at almost three times the rate of non-retirees in the last decade.
The total retired population will spend £130bn this year, an increase of 71% since 2005. In contrast, the non-retired population has seen an increase of only 27% over the same period. In 2005, retired households made up just 12% of the UK’s overall spending, but within just ten years, they have increased their share by a quarter, now comprising 15% of the total.
If retirees’ spending only keeps pace with rising disposable income over the next ten years, Canada Life estimates it will reach £194bn by 2025, even allowing for the state pension age to increase to 66 from 2018-2020.
The rapid growth of the retired population, which reached 11.7million this year, has been a key driving factor. However, spending has grown drastically per household too. Over the last ten years, the typical retired household has increased its spending by 53%, climbing from £11,438 in 2005 to £17,465 this year. Disposable income is up sharply too (+43%). Faster growth in spending indicates retirees feel financially comfortable spending a disproportionate share of their additional income.
By contrast, a typical non-retired household is now only spending 21% more than ten years ago, compared to a 26% increase in disposable income. Not only has their spending increased much more slowly than retirees, but non-retired households have also increased the proportion of their income they save as they tighten the family purse-strings.
All categories of retirees have increased their spending significantly, but those dependent on state benefits have increased theirs fastest (+69% for a state-dependent couple, compared to +42% for a couple with private sources of income too).
From necessities to fun
The increasing spending power of retirees has facilitated a shift in what they are buying, with spending on having fun (such as alcohol, cultural pursuits, entertainment, restaurants and hotels) outstripping spending on essentials (such as food and clothing). When population growth is accounted for, retirees are now spending £13.6bn more every year having fun than they did in 2005 (an increase of 74%). Retirees currently spend £31.9bn having fun annually, compared to £22bn spent on essentials. A typical retired household has increased its spending on having fun by 56% in the last ten years.
Housing and fuel spending per household has risen the most, up 70%, though at £4,681 per year, it is only a little more than the amount spent on having fun. The rise in housing costs reflects among other things, higher energy costs in heating and lighting, and higher rents for the relatively small proportion of retirees who do not own their own home.
The rest of the UK falls far behind retirees
Among the rest of the population, spending trends per household have been very different. Most noticeably, spending on having fun has barely increased since 2005, up just 9% for the non-retired population, far below the rate of inflation. Spending on essentials is up 22% per household, faster than spending overall, but still half the pace of the retired households, indicating that there has been some belt tightening compared to them.
Spending on housing is up 36%. Record low interest rates have reduced mortgage costs among the home-owning population, helping keep a lid on borrowing costs.
Richard Priestley, Executive Director of Retirement Income said: “Times have changed for retirement in the UK. Living standards are better than ever before, and retirees now have the financial firepower to make the most of later life. Pensioner poverty has not been eradicated altogether, but there have been dramatic improvements in income across the board, and most retired people are living comfortably. Spending has boomed as a result, even while the rest of the country has tightened its belt.
These figures pre-date the new pension flexibility which dangle the temptation to spend hard-saved pensions in a flash. Taking advice, and planning properly for retirement is more crucial than ever to ensure we can all meet our lifetime goals, and maintain our lifestyles through retirement.
The figures also shine a light on how much more important the older demographic is in our economy. The silver pound is growing in strength, and as the UK’s retired population swells, its spending power will only increase further. This has clear implications for businesses marketing their products and services, and highlights the opportunity for those able to meet the needs of this segment of the population.”
