Retirement Income  

Recent retirees better off than older pensioners

Recent retirees better off than older pensioners

The household income of recently retired pensioners is one fifth (20 per cent) higher than that of older pensioners, according to analysis from Aegon. 

Analysis of department for Work and Pensions data (published March 2019) has found that the net average weekly income (after income tax, national insurance and council tax) of recently retired pensioners is £392, compared with £326 for pensioners who retired some time ago.

Aegon classed recent retirees as those who are fewer than five years above the state pension age and found that the main reason for this difference was earnings income.

More than a quarter (26 per cent) of the income received by recent retirees was from earnings compared with 13 per cent for older pensioners. 

This suggests recent retirees are increasingly taking a phased approach as they transition from work into retirement, Aegon stated.

Steven Cameron, pensions director at Aegon, said: "The government figures show that older pensioner households are lagging behind recent retirees when it comes to their income. 

"Changing retirement patterns could be a reason for this as many people are now adopting a transitional approach to retirement by continuing in employment after traditional retirement ages, while reducing their working hours over a period of time rather than a ‘cliff edge’ approach."

The data also showed that since 1995, earnings income for new retirees has more than doubled from an average of £64 to £168 per week on top of personal and state pension incomes.

Mr Cameron said: "For individuals in the early stages of retirement, many of who are in the baby boomer generation, pensioner poverty generally is at an all-time low, but as these figures are based on average (median) incomes, it must be remembered that there are many retirees with incomes substantially below the average figures."

The data also revealed an unequal distribution in income between pensioner age groups. 

Just 13 per cent of pensioner couples where the highest earner is over 75 have an income in the top fifth of pensioners with the highest income compared with nearly a quarter (23 per cent) of pensioner couples where the highest earner is under 75.

Despite this, Aegon warned that individuals approaching retirement should not assume that their income will be higher than previous generations', due to the decline in defined benefit pension schemes. 

Mr Cameron said: "The retirement income of the post-war generation has been boosted by favourable economic conditions.

"Many but by no means all retirees will also be benefiting from generous DB pensions, but this feature will tail off for future retirees, making it unlikely that each future wave of newly retired will have average incomes higher than the previous one.

"Policymakers need to ensure they look at the changing income profiles of pensioners to understand the distribution of wealth across this large and growing proportion of the population. 

"Adopting a ‘one-size fits all’ approach would be dangerous and risks overlooking what can be significantly different financial challenges facing pensioner groups of different ages and wealth."