Pensions remain a bigger share of wealth than property

Private pension wealth has represented a greater share of total wealth than property wealth since 2008, according to a new report from the ONS, a dynamic that has not changed despite relatively high house price growth in recent years.

Related topics:  Later Life
Rozi Jones
7th January 2022
pound coins money scales balance house prices
"All forms of wealth are not equal and can serve different purposes and give different kinds of material comfort. You can live in a house, but you can live on a pension."

The report - Household Total Wealth in Great Britain - found that median net household wealth, which includes property, private pension, other assets and savings and investments, increased very slightly to £302,500 between 2018 and 2020. Wealth inequality has remained stable over the last 14 years, with the richest 1% having wealth of £3.6 million and the least wealthy 10% having £15,400 or less.

Both property and pensions together make up three quarters of all wealth, but over the last 14 years, partly down to lower levels of home ownership among younger people, the introduction of auto-enrolment and the increase in the state pension age, private pension wealth as a proportion of all wealth has increased from 34% in 2006-2008 to 42% in 2018-2020, while property wealth fell to 36%, from 42% over the period, the ONS found.

The proportion of women with no active pension has fallen from 68% in 2006/2008 to 58% in 2018/2020. For men the proportion without an active pension had fallen from 59% to 52% over the same period. The proportion of younger workers with defined contribution pensions has risen significantly. 35% of 25 to 34-year-olds now have defined contribution pensions, up from 13% in 2006 to 2008.

However the importance of defined benefit pensions featured heavily when comparing the pension wealth of employees and the self-employed. The ONS found households with employee heads had higher levels of pension wealth than the self-employed, which was most likely driven by higher participation in private pensions (94% had private pension wealth compared with 79% for self-employed). This group also held larger pension pots on average, a consequence of defined benefit pensions being available to employees but not for the self-employed.

Becky O’Connor, head of pensions and savings at interactive investor, commented: “Property gets a lot of glory, but pensions can be the quiet secret to wealth accumulation. Thankfully, because of auto-enrolment, more people are in on them than ever, giving access to long-term investment growth at a time when property price growth has meant the barriers to entry for home ownership have risen.

“Unfortunately, much of the pension wealth in the UK is in the form of generous defined benefit pensions, which many older people still have, but are quickly disappearing. It will be harder for younger workers with defined contribution pensions to build their wealth up to such levels.

“All forms of wealth are not equal and can serve different purposes and give different kinds of material comfort. You can live in a house, but you can live on a pension. Some people in the UK now find themselves ‘asset rich’ and living in a valuable home, but cash poor, with low income to actually cover living costs, perhaps through not having sufficient pension income. Ideally, of course, you’d like both.”

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