New research suggests that the current generation of pensioners are actually living in a golden era for retirement.
One financial expert even claims that retirees have never had it so good, which may surprise the many pensioners battling against rising prices on a low fixed income.
So are retirees really living in a golden age, and how long can it last?
New official figures make it clear that the lot of the average pensioner really has improved over the last 40 years, financially at least.
Back in 1977, just one in five retired households had an annual disposable income of more than £10,000, after accounting for inflation.
By the end of the last financial year, that had jumped to 96 per cent.
The main reason is the dramatic growth in workplace and personal pensions, which account for more than half the increase after rising sevenfold over the period, according to the Office for National Statistics (ONS).
Ed Monk, associate director for personal investing at Fidelity International, says we have come a long way in 40 years: “In 1977, being retired was practically synonymous with being poor, but thankfully that is no longer the case.”
The problem is not everybody is benefiting: retirees with company or personal pensions are 1.6 times better off than those without.
Income inequality is therefore widening, although less so than in the 1980s.
Tom Selby, senior analyst at online investment platform AJ Bell, says average disposable weekly income for someone with a company or personal pension is now £534.75, against just £331.33 for those without: “The gap between the pension haves and have nots is on the rise, a stark reminder of the impact of failing to save for retirement. Today’s savers can no longer rely on the state to fill the void.”
Crucially, the ONS figures do not include housing costs, which have risen sharply, leaving those still renting or paying off a mortgage in retirement notably worse off than homeowners who have cleared their debt.
Prudential discovered that one in four people retiring this year will still have a mortgage or other debts to pay off, owing £24,000 on average.
This problem is also likely to grow with mortgage debt held by over 65s doubling from £20 billion today to nearly £40 billion by 2030, the International Longevity Centre-UK calculates.
Today’s pensioners have also been hammered by the Bank of England’s decision to slash base rates to near zero, sending savings and annuity rates to all-time lows, punishing millions who saved diligently for their retirement.
So not every pensioner is feeling well off. Despite this, Close Brothers Asset Management head of pensions David Newman says pensioners have never had it so good: “Gold-plated final salary pensions have been instrumental in boosting incomes over the past 40 years, while the state pension has doubled.”
The “triple lock”, which guarantees that the state pension will continue to rise either in line with earnings, inflation or 2.5 per cent, whichever is higher, is further boosting incomes.
However, like many, Newman questions whether the state can afford this pledge as life expectancy rises. With final salary pension schemes also on borrowed time, he says the big question is this: “What happens for younger generations?”
Young people now graduate tens of thousands of pounds in debt and have to borrow huge sums to get onto the property ladder, while incomes slide in real terms and the jobs market becomes more unstable.
The Government-backed auto-enrolment scheme will give millions of lower-paid workers a company pension for the first time, including an employer top-up and tax relief, but Newman says it is not enough on its own: “Saving the bare minimum will not guarantee the next wave of retirees will have such strong incomes.”
Younger savers also need to save under their own steam, but many are pessimistic, with more than half of today’s workers saying they will not build a big enough pot to maintain their desired lifestyle in retirement.
Huge numbers expect to work part-time or downsize to a smaller property to make ends meet, while an alarming number are relying on an inheritance, according to research from The People’s Pension.
Director Darren Philp says the era when people completely stop work and live on their pension is consigned to history: “Many appear to be planning for a phased retirement where they choose to work part-time or hope to survive on uncertain funding sources, such as an inheritance or property.”
Worryingly, many of these “precarious pensioners” are already aged 55 and unprepared financially for fast-looming retirement, Philp adds.
TROUBLE IN STORE
Steven Cameron, pensions director at insurer Aegon, says despite recent good news we must beware complacency as the ageing population heaps greater pressure on public services and state finances: “A rising state pension age, the recent threat to the triple lock, and the slow demise of gold-plated final salary pensions mean this golden age of retirement is unlikely to last much longer.”
Source : EXPRESS