Personal PensionSep 11 2014

Baby boomers heading for wealthy retirement: IFS

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People aged around 70 are likely to have ‘oversaved’ and are heading for a better-than-adequate retirement, a study by the Institute of Fiscal Studies has claimed.

In a 35-page working paper, Cash and Pensions: Have the Elderly in England Saved Optimally for Retirement?, authors Rowena Crawford and Cormac O’Dea said most people born in the 1940s had wealth levels “far greater than necessary to maintain their living standards in and through retirement”.

The study claimed that for more than 90 per cent of respondents, observed wealth levels were “greater than optimal”.

It said the median surplus among those who had oversaved was more than £225,000, while the median deficit among pensioners was less than £40,000.

The mean level of total net wealth among the 996 couples surveyed was £574,048, half of which is accounted for by private and state pension wealth, while housing accounts for 30 per cent.

However, Ros Altmann, the UK government’s older workers’ champion, said that it was “not safe” to conclude that these couples have saved more than they need.

She said: “Care costs are ignored. It is questionable whether looking at income from ages 20 to 50 when assessing the adequacy of income from age 65 onwards today is appropriate. Almost everyone born in the 1940s is now aged 65 or over, and many more of those who are in this age range are still working, which could bias the results.

“The analysis ignores the need to pay for healthcare and social care as life expectancy rises. In addition, there will be rising costs of health and social care, which have been ignored in this analysis, despite rising life expectancy.”

Ms Altmann also suggested that women born in the 1940s will have had far lower earnings between ages 20 and 50 than younger women, so the analysis presents a skewed image of joint earnings power.

Ms Crawford said: “We assume couples stay together because it is not feasible to model household transitions. Earnings are at the household level, and observed earnings will, for example, be much lower in years in which one partner was out of the labour market.”

Adviser view

James Garman, chartered financial planner for Nottingham-based Retirement Specialist, said: “A lot of the older generation in this country have lived a fairly prudent life.

“They saved before they spent and didn’t have the sort of debt and credit that people 10, 20 or 30 years younger have had.”