Strong recent growth in typical pensioner incomes has been driven by new cohorts of pensioners who are more likely than their predecessors to still be in work, own a home and have access to generous private pension pots. This is according to new analysis published today (Monday) by the Resolution Foundation for the Intergenerational Commission.
The report, As Time Goes By, tracks the scale of income growth across different generations over the last 50 years.
It highlights how strong growth in pensioner incomes – coupled with weak income growth for working age households – has driven a huge change in living standards across Britain. Typical pensioner households are now £20 a week better off than typical working age households (after housing costs), while back in 2001 typical pensioner incomes were £70 a week lower than working age incomes.
However, this strong growth is not the result of a boom time for all pensioners, with most finding that their personal situation changes little from year-to-year. While typical incomes across the pensioner population have grown by over 30 per cent since 2001, the typical income of someone who turned 65 in that year was only 7 per cent higher by 2014.
Instead, record pensioner incomes are a product of the arrival of successive waves of better-off pensioners.
The report identifies four key drivers of growth in typical pensioner incomes since the 2000s that have particular affected people recently becoming pensioners. These are:
Occupational pensions – the biggest single source of rising pensioner incomes this century. Occupational pensions account for over a third of gross pensioner income growth since 2001. A typical pensioner currently has over £5,000 of annual occupational pension.
Employment – the proportion of pensioner households in which at least one person works has grown from one in eight in 2001 to nearly 1 in 5, despite increases in the state pension age. It accounts for a quarter of pensioner income growth since 2000.
Benefits – the value of the typical pensioner’s benefit income has increased by 8 per cent since 2001. This accounts for a further quarter of income growth since 2001.
Housing – the shift from social rented accommodation to home ownership among pensioners has reduced housing costs and therefore boosted their disposable incomes. 73 per cent of pensioners currently own their own home, up from 64 per cent in 2001, while the proportion living in the social rented sector has fallen from 22 per cent to 14 per cent over the same period.
The report notes that while these four sources have boosted incomes across the pensioner population as a whole, growth in employment income and private pension income has been particularly important for the richest pensioner households. The top fifth of pensioner households account for 74 per cent of all employment income, 66 per cent of investment income and 52 of occupational pension income. In contrast, the poorest fifth of households are almost entirely reliant on benefit income.
The Foundation warns that future generations of pensioners cannot assume that they will benefit from further gains from these income sources, particularly with home ownership falling and millennials seeing no generational income growth from their predecessors.
They will also be less likely to have access to defined benefit pension schemes, with the scale of private pension income for future generations being dependent on the continued success of auto-enrolment in driving up occupational pension saving.
It says that tackling these challenges – as well as making further progress on helping more people to stay in work as they get older – will hold the key to ensuring that today’s workers enjoy the same remarkable generation-on-generation improvements in living standards that recent waves of pensioners have achieved.
Adam Corlett, Economic Analyst at the Resolution Foundation, said:
“One of the most intriguing aspects of the recent living standards story across Britain has been typical pensioner household incomes overtaking working age households for the first time.
“This has led some to assume that all pensioners are enjoying some kind of boom amid the painful squeeze for everyone else. The reality is quite different – the incomes of individual pensioners grow relatively slowly, particularly once they’ve stopped working.
“Instead, the main driver of pensioner income growth has been the arrival of successive new waves of pensioners, who are more likely to work, own their home and have generous private pension wealth than any previous generation.
“Of course, not all pensioners can draw on these income sources, which is why the state pension will always be the main income for many pensioners. We can’t assume either that young people today will be able to drawn upon the kind of wealth that recent pensioners have accumulated, given the recent fall in home ownership and decline in generous defined benefit schemes.
“The big challenge we face as a society is to ensure that the record incomes that a new generation of pensioners are enjoying are not a one-off gift, and can endure for future generations too.”