Personal Pension  

Pension income falls as DB retreat bites

Pension income falls as DB retreat bites

The average weekly income from pensions has continued to fall as dwindling numbers of defined benefit pensions are taking their toll.

Data published by the Department for Work and Pensions this morning (March 26) found in 2018-19, the average income from occupational pensions received by individuals who have reached state pension age was £181, down 10 per cent from £199 in 2016-17.

This compared to an average payment of £163 in 2018-19 for those who have not yet reached state pension age, an increase of 7 per cent from the £151 recorded in 2016-17, most likely helped by rising auto-enrolment contribution rates.

The DWP also found over the past three years the average income from personal pensions received by individuals who have reached state pension age has fallen by 43 per cent, from £30 per week in 2016-17 to £17 in 2018-19.

It found the same to be true among those who have not yet reached state pension age. According to the data, personal pension income in 2018-19 for these individuals was £19 per week, a drop of 10 per cent from £21 in 2016-17.

The DWP found occupational pension income was received by 60 per cent of pensioners in 2018-19 compared with personal pensions, which were received by 17 per cent. Nearly all pensioners (98 per cent) received the state pension in 2018/19. 

The DWP also found after a high of £676 in 2016/17, gross weekly income among pensioners who have recently reached state pension age fell to £603. This was the lowest figure seen since 2008/9 when it was £585.

Alistair McQueen, head of savings & retirement at Aviva, said: "While income from the state has held up, there has been a fall in income from pensions and from earnings. 

"The fall in income from private pensions will have been contributed to by the decline of generous defined benefit pensions, and the rise of defined contribution pensions."

Defined benefit numbers have been on the decline in the past decades. But from 2012 workers have been auto-enrolled in defined contribution workplace schemes, contributing a minimum of 2 per cent initially and rising to 8 per cent of qualifying earnings in 2019.

Mr McQueen said: “Automatic enrolment has successfully introduced millions to pension savings. But at a typical contribution rate of just 8 per cent, many may be on track to a private pension income that represents a fraction of those incomes that were provided by yesterday's defined benefit pensions.”

He added: "In the coming decade, more will be saving in private pensions than ever before, and more will be entering retirement than ever before. More will need help than ever before to ensure this population can achieve their financial goals for later life."

Occupational pensions are those overseen by scheme trustees - typically workplace defined benefit and defined contribution pensions.

Personal pensions are otherwise known as contract-based pensions. These are typically contracts directly between the individual and the pension provider, without a trustee in between.