Younger pensioners have enjoyed a huge boost to their income over the last two decades, according to figures released by the Department for Work and Pensions (DWP).
The average weekly income for pensioners under the age of 75 is now £348, almost £100 more than pensioners aged over 75. “Many new pensioners have arrived in a golden age of retirement,” says insurance company Royal London.
Pensioners over the age of 75 have an average weekly income of £257. That’s an increase of 92% over the past 20 years. In contrast, those still in work have only seen a 28% rise in their income over the same period.
“Today’s pensioners have worked hard for their prosperity and there are still areas of inequality, both regionally and in terms of age, with older pensioners having lower incomes,” says Tom McPhail, head of retirement policy at Hargreaves Lansdown. “This news is likely to exacerbate intergenerational tensions.”
The DWP explains the difference in income between under 75s and over 75s as down to three key reasons.
Firstly, younger pensioners are more likely to still be working. Its research found that £148 of the average weekly income of younger pensioners comes from employment, compared to just £12 a week for over 75s.
Secondly, under 75s “were more likely to have benefited from the peak occupational scheme savings in the late 1960s,” says the report.
Finally, the rise in real earnings over the past few decades means younger pensioners had a larger disposable income when they were working giving them the opportunity to save more into their pensions.
More pensioners working
[SPOTLIGHT]The figures from the DWP show that one reason for the increase in income is that many pensioners are continuing to work past 65.
Back in 1994 only 7% of over 65s were working, that figure has now almost doubled to 13%.
Now 24% of the weekly income of pensioners under the age of 75 comes from employed earnings. What isn’t clear is whether those pensioners who are still working are doing so because they want to, or because they have to.
“The significant increase in weekly income is great news for those in retirement. But looking at the main differences in the source of income for those under and over 75, there are clearly two key elements,” says Fiona Tait, pensions specialist at Royal London. “A smaller percentage of the income for those under 75 is being sourced from state benefits. By contrast, income from earnings represents nearly a quarter of the income for those under 75 compared with just 3% for the older group.”
Planning for your retirement? Compare SIPPs
Retirement earnings gap narrows
Another key change the DWP has revealed is that the gap between what we earn when we work and what we earn in retirement has narrowed significantly.
Twenty years ago pensioner incomes were 38% lower than the average workers’ income. Now that gap has narrowed to just 7%.
State Pension plays a key role
One of the reasons pensioners are enjoying increased weekly income is the rise in the State Pension. It has increased by 21% since 1994. Over half the weekly income of over 75s comes from benefits including the State Pension.
“A key component of pensioners’ improving prosperity has been the State Pension, which has increased from an average of £133 a week in 2004/5 to £161 a week in 2014/15,” says McPhail. “The continued use of the triple lock may come under increasing pressure, if only to refocus state pension resources on the over 75s who have the greater need.”
Those pensioners who are under 75 only get 35% of their weekly income from benefits, with a greater chunk of their incomings coming from earnings and personal pension income.
The DWP stats show that 72% of retirees now receive an income from a private pension as well as their state benefits. With private pensions accounting for £143 on average of weekly income.
“Benefit income, such as the State Pension, is designed to provide a basic level of income, not to replace earned income,” says Tait. “This means that the majority of people who want to maintain their standard of living into retirement will have to make additional savings.”
Want to start growing your savings? Explore the loveMONEY investment centre