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Retirement
Posted on 29th August by Graham Laverick

Never had it so bad

UK pensioners have never had it so good, that what the figures from the Office for National Statistics(ONS) tells us. In 1977 just one fifth of retired households had an annual disposable income taking into account inflation and household composition of £10,000. Yet by 2016 this had risen to 96%of pensioner households. Whichever barometer you choose this is a vast rate of change.

 

The majority of this increase is attributed to the improved private pension income which the ONS states over this period of 40 years has increased seven-fold. However, the difference between those with a private pension income and those without is that they are not seeing cash benefits increasing sufficiently. So, there is an overall inequality in income between the two.

 

This should come as no surprise. Someone who was unable to save it would follow for whatever reason they would have less money in retirement than someone who has.

 

What is not included in the figures are housing costs. Generally, if you have a mortgage or pay rent you are going to be worse off than those who own their own property or have paid off their mortgage during the time you would need to save for your pension. A property is likely to be one of the largest single expenses for a family or individual each month.

 

The disposable rate of income for retired households has increased at an average rate of 2.8% after inflation compared to 2.1% for non-retired households.

Retirees have also manged to avoid the worst ravages of the credit crunch, incomes in 2016 are 13% higher than the pre-downturn levels in 2008. Non-retired households have seen their income come down by 1.2% over the same period.

 

With regards the current pensioners it is hard to argue against them being better off. This generation has benefited from the final salary pension schemes of last 40 years. These gold-plated pensions meant an employee never had to worry about how a scheme was performing as in general they would be paid an income in retirement of up to two thirds of a final salary as a pension no matter what.  As many will have seen in the press other than the public sector these are becoming increasingly rare.

 

Think about it. A company continuing to write a blank cheque to a large number of employees based on the amount they were earning when they left, whereby the only responsibility the employee had was having some of his or her money taken from salary to put into the pension pot in the first place. And in some cases, no contribution from the employer.

 

This could be considered reckless behaviour. Add in the extra safeguards imposed on employers following various pension scandals, funding for the Pension Protection Fund and regulatory costs, you can see why these schemes are becoming rarer.

 

The other factor to also hit Defined Benefit Schemes is the rising life expectancy although recent statistics would suggest this is starting to level off. Combine this with lower investment returns, this has forced many companies to move towards a defined contribution model.

 

Then we have the government putting in limits to the amount that high earners can make into pension arrangements. Opinions are divided but we may see further reductions in the amount of contributions an individual can make and also the amount of tax relief in the November Budget.

 

Then we have the recent announcement that the state pension age will rise from 67 to 68 between 2044 and 2046 to between 2037 and 2039. So, another potential shortfall is looming.

 

Women have also been affected when it comes to pension savings. These are usually the ones to take a career break to have children and often come back to work in a different role including part time work. At the same time, male colleagues may have been promoted and therefore earning more money resulting in more money going into their pension.

 

The Equal Pay Act has been in force since 1975 and there are still stories showing something is badly wrong. The recent revelations at the BBC and the public outrage is just one example and many would say is just the tip of the iceberg.

 

Fairness in pay and pensions should be in place for everyone but when you have government run sectors clearly not complying with the law how do the government expect the rest of employers to comply.

 

If we want people to take care of themselves more in retirement then things need to change now and not to be put into the long grass and addressed in years to come.