Today’s golden age of pensions setting false expectations for tomorrow’s retirees

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  • Pensioner incomes have doubled in 20 years and are now almost equal to those of the working population
  • But new research highlights those approaching retirement are much more concerned about running out of money (57%) than people who’ve already retired (37%)
  • Historic defined benefit (DB) schemes coupled with recent triple lock in state pensions has created today’s golden age of pensions
  • However Aegon warns rising housing costs, a DB cliff-edge and big question marks over future state pensions generosity, are creating a perfect storm for tomorrow’s retirees, who will struggle to match current pensioner levels of retirement comfort

A new report from pension firm Aegon titled ‘The Golden Age of Retirement – Does rising pensioner wealth mask future problems?(Opens new window)’ finds that pensioner incomes have almost doubled over two decades, rising from £155 per week in 1995 to £297 in 20151. While the gap between pensioner and worker incomes has closed and there is just a 7%2 difference today, the report calls into question whether the next generations of pensioners will be as well off.

Based on new research and analysis of government statistics, Aegon attribute this growth in retirees’ incomes to three key factors;

  1. the incomes current pensioners are receiving from generous defined benefit pension schemes set up from the 1960s;
  2. recent above-inflation increases in  the state pension;
  3. an increasing number of older people continuing to work part-time in retirement.

Today’s workforce is worried about retirement security

However, those approaching retirement are concerned about the challenge facing them. Well over half (57%) of people aged between 50 and 64 are worried they will run out of money during retirement. This compares to just 37% of over 65s3.

Faced with high living costs, mortgage repayments and family commitments, 92% of those aged 45-49 and 89% of those aged 50-65 reported barriers to them being able to save for retirement, despite these historically often being peak ‘disposable income’ earning years.

One of the biggest risks to future retirement income is the uncertainty over increases to the state pension. Almost half of pensioners’ household income4, some £214, comes from state benefits, making it a financial lifeline for much of the population. Aegon’s research suggests that a third (36%) of people aged 50-64 are worried that the state pension will be less generous in future.

Can pensioner wealth be maintained?

Current workers’ concerns stem to a large extent from radical changes to workplace pension provision in recent years with very few private sector employees still building DB pensions that guarantee a proportion of final earnings for life. These are being replaced with less generous defined contribution schemes which place investment risk and decision making on the individual.

While over 6 million5 people are now saving into a defined contribution (DC) pension as a result of auto-enrolment, these pensions are seldom as generous as the DB schemes they replace. Worryingly, many of those recently auto-enrolled are seeing only 2% of their pay being invested which will come nowhere near making up the hole made by the absence of DB.

On top of this, recent generous increases to state pensions are being challenged despite state pensions remaining the bedrock of most people’s income in retirement. Finally, rising housing costs mean people are re-paying mortgages at a later age6, which prevents them fully focusing on retirement goals.

Steven Cameron, Pension Director at Aegon said: “The rise in pensioner wealth over the last few decades has been remarkably positive, with retirees now enjoying income levels after housing costs almost equal to those of working age. This is largely thanks to generous DB schemes, recent above inflation increases in state pensions, and a growing cultural acceptance of working later in life. But the question is whether we have reached a tipping point, with gold-plated DB pension schemes largely been phased out, and the future of generous state pension increases also called into question. Those approaching retirement could be setting false expectations if they want a similar level of comfort in later life to that of their parents or recently retired friends.

“Auto-enrolment is an important first step, but won’t be enough to replace the generous DB retirement incomes historically provided by employers and there needs to be more of a focus on getting people engaged with their savings. It’s also important we stop looking at retirement in black and white terms, with individuals either in work or retired and as a society find roles for older workers and encourage flexible working from 65 and beyond for those in good health too. While there are many challenges ahead, the rise of pensioner wealth has been remarkable and the good news is people are living and staying active longer, which will provides an opportunity to rethink traditional views of retirement.”

Further information

1 Pensioners’ Income Series, 28 June, 2016 – Weekly income after household costs (table 2.1)

2 Pensioners’ Income Series, 28 June, 2016 – £320 working household income versus £297 for retirees

3 Censuswide Research was conducted in July 2016. 2,016 individuals aged over 45 were interviewed for the study

4 Pensioners’ Income Series, 28 June, 2016 – Weekly income after household costs (table 2.1). Gross figures before deduction of direct taxes and housing costs

5 6 million workers auto-enrolled: new window)

6 Third of homeowners aged 45 expect to repay mortgage beyond 65 new window)

Jonathan Henderson
Aegon UK
0131 549 3578

Neil Cameron
Aegon UK
0131 549 3293

Teamspirit PR
Nicolas Albrow/Ellie Pocock/Henry Adefope

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to around two million customers and employs approximately 2,100 staff. Aegon UK’s revenue generating investments totalled £59 billion as at 31 December 2015.
  • As an international life insurance, pensions and asset management company based in The Hague, Aegon has businesses in over twenty five markets in the Americas, Europe and Asia. Aegon companies employ over 28,000 people and have millions of customers across the globe as at February 2015. Further information:
  • Aegon is the Lead Partner of British Tennis.