Pensioners now earn more than working families
THE Resolution Foundation have published a report which found that, for the first time, pensioners' incomes are now exceeding those of working-age households.
The report, titled As Time Goes By, discovered that pensioners are now earning £20 a week more than non-pensioner families, yet the reason for this increase is more complicated than a simple increase in pensions.
On the one hand, a new generation of pensioners are increasingly likely to remain in employment, while on the other, working-age incomes have suffered a simultaneous decline.
While such a shift points to a growing intergenerational divide between younger and older members of the UK population, the Resolution Foundation warn future generations not to expect to benefit from rising pension incomes once they also reach retirement age.
Nonetheless, they explain the present eclipse of working-age incomes by pension incomes in terms of four factors, which are listed below:
- Employment - one in five pensioner households now has someone in work, as opposed to one in eight such households in 2001.
- Benefits - since 2001, benefit income for pensioners has grown by 8%, accounting for a 25% increase in the overall growth of retirement incomes.
- Housing - compared to 64% in 2001, 73% of pensioners now own their own homes, reducing their living costs and increasing their disposable income.
- Occupational pensions - a third of the overall growth in pension-age incomes comes from the growth of workplace pensions, which typically contribute some £5,000 annually to a "typical" pensioner's income.
Together, these factors have allowed the most recent generation of pensioners to attain incomes which are worth 30% more than they were in 2001.
Yet the Resolution Foundation are keen to stress that this growth has come mostly from a more recent intake of pensioners, whereas those who reached retirement age in 2001 have seen their pension incomes grow by only 7%.
Commenting on this aspect of the figures, the Foundation's Economic Analyst, Adam Corlett, said, "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".
Kids these days
And yet, another major cause in the overtaking of working-age incomes by pensioner incomes is that the UK's younger generations are earning less for their work.
In November, for example, the Office for Budget Responsibility said that "Subdued earnings growth and higher inflation mean that real income growth [will stall] in 2017", while the Resolution Foundation reported earlier this month that Millennial men earn £12,500 less than the generation preceding them by the time they reach 30.
It's partly because of this that the Foundation predict that the growth in pensioner living standards won't be extended to later generations, such as Millennials and Generation Xers.
Yet this isn't simply because of stagnating incomes, but also because of declines in home ownership rates and pension uptake.
For instance, research from the Halifax revealed in 2015 that 60% of the 20- to 45-year-old age group aren't saving any money to buy a home of their own.
Assuming that none of them go on to actually own their own home, this would make their retirements much costlier, since it's around £2,000 a year more expensive at the moment to rent than to pay a mortgage.
And this expense would be compounded by how people aren't currently putting enough into their pension funds. According to the Independent Review of Retirement Income, the average employee is saving 10% less each month than is necessary to have a "decent sized pension pot" by the time they retire.
If such trends continue, the Resolution Foundation appear to be suggesting, then future pensioners won't be enjoying the kind of year-on-year increases in pension incomes that current retirees are enjoying.
What can be done?
The response of David Willetts - a former Conservative minister and current executive chair of the Resolution Foundation - to this trend was to suggest that the "triple lock" should be reviewed.
The triple lock is a guarantee that pensions will increase in line with whichever is the highest out of the consumer price index, average earnings, or 2.5%.
This ensures that pensioners won't be short-changed by inflation, yet Mr Willetts argues that it's "a very powerful ratchet pushing up pensions at a time when incomes of the less affluent half of working households are barely rising at all".
This may be true, but simply reducing pensions just because working incomes are low wouldn't be the best way of dealing with the problem.
And neither would it be the best way of dealing with static incomes and rising living costs, which are the biggest problems of all.