The incomes of British pensioners have doubled in the last 20 years and — after housing costs — are now almost equal to those of the working population, according to a major new report by Edinburgh-based Aegon UK.
Generous defined benefit (DB) pension schemes — now being phased out — coupled with recent “triple lock in” state pensions helped created today’s “golden age of pensions” according to the report.
The report found that UK pensioner incomes have almost doubled over the last two decades — up from £155 a week in 1995 to £297 in 2015.
The gap between pensioner and worker incomes has closed so much there is just a 7% difference today, the report said.
However, the research also showed those approaching retirement age are much more concerned about running out of money (57%) than people who’ve already retired (37%).
And Aegon warned that rising housing costs, the defined benefit “cliff-edge” and big question marks over the size of future state pensions are creating a perfect storm for tomorrow’s retirees who “will struggle to match current pensioner levels of retirement comfort.”
The report is called The Golden Age of Retirement — Does Rising Pensioner Wealth Mask Future Problems?
“The rise in pensioner wealth over the last few decades has been remarkably positive, with retirees now enjoying income levels after housing costs almost equal to those of working age,” said Steven Cameron, pension director at Aegon.
“This is largely thanks to generous DB schemes, recent above inflation increases in state pensions, and a growing cultural acceptance of working later in life.
“But the question is whether we have reached a tipping point, with gold-plated DB pension schemes largely been phased out, and the future of generous state pension increases also called into question.
“Those approaching retirement could be setting false expectations if they want a similar level of comfort in later life to that of their parents or recently retired friends.
“Auto-enrolment is an important first step, but won’t be enough to replace the generous DB retirement incomes historically provided by employers and there needs to be more of a focus on getting people engaged with their savings.
“It’s also important we stop looking at retirement in black and white terms, with individuals either in work or retired and as a society find roles for older workers and encourage flexible working from 65 and beyond for those in good health too.
“While there are many challenges ahead, the rise of pensioner wealth has been remarkable and the good news is people are living and staying active longer, which will provides an opportunity to rethink traditional views of retirement.”
The report said that faced with higher living costs, mortgage repayments and family commitments, 92% of people aged 45-49 and 89% of those aged 50-65 reported barriers to being able to save for retirement, despite being in their peak years for earnings and disposable income.
It said one of the biggest risks to future retirement income is the uncertainty over increases in the UK state pension.
Almost half of UK pensioners’ household income, about £214 a week, comes from state benefits.
Aegon’s research suggests that more than a third (36%) of people aged 50-64 are worried that the state pension will be less generous in future.
The report said current workers’ concerns stem to a large extent from radical changes to workplace pension provision in recent years “with very few private sector employees still building defined benefit pensions that guarantee a proportion of final earnings for life.”
These defined benefit pensions are being replaced with less generous “defined contribution” schemes which “place investment risk and decision making on the individual.”
More than six million people are now saving via a defined contribution pension — but many of those recently auto-enrolled are seeing only 2% of their salary being invested “which will come nowhere near making up the hole made by the absence of defined benefit.”