PensionsMar 24 2023

Drop in pensioner incomes reiterates need to save for retirement

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Drop in pensioner incomes reiterates need to save for retirement
DWP figures show pension incomes have fallen suddenly. (Pexels/Suzy Hazelwood)

Data from the Department for Work and Pensions has shown a sudden decline in real pensioner incomes in the 2021-22 tax year compared to the previous year.

According to the DWP’s pensioners' incomes series data, published yesterday (March 23), the median pensioner real income – including state pension, other benefits and private incomes - after housing costs fell from £376 a week in 2020/21 to £349 in 2021-22.

This marked a drop of £27 per week, or £1,404 a year.

However, the DWP highlighted that some of this difference may be as a result of the more limited, and therefore less representative, 2021 pensioner sample caused by the coronavirus pandemic.

But the government noted that sub-inflation uprating of the state pension will have had an impact.

For the 2021-22 year the state pension increased by the 2.5 per cent ‘triple lock’ minimum, as the annual CPI inflation rate in September 2020 was only 0.5 per cent. However with inflation over the 2021/22 year averaging at 4 per cent, real incomes took a knock.

Gary Smith, partner in financial planning at Evelyn Partners, said: “It looks like there has been some reduction in numbers receiving income-related benefits but still, the data gives pause for thought on the state pension, which comprises the majority of many pensioners’ income.

"Even in a year when the triple lock was in force, the state pension took a real hit of about 1.5 per cent.

“What then will we see for the 2022/23 tax year when the watering down of the triple lock to omit earnings growth meant that the payout rose by only 3.1 per cent in a year when inflation rocketed? 

“We have just learned that annual inflation in February was 10.4 per cent. These past effects are easy to forget when we have what seems like a tub-thumping 10.1 per cent boost to the state pension arriving in April."

He said it also illustrated how each year’s uprating of the state pension is as important for future cohorts of workers as it is for current retirees.

Getting professional, regulated advice, when possible, would always be our strongest recommendation.Stephen Lowe, Just

The data showed the state pension and other benefits represented 56 per cent of single pensioners’ incomes in retirement and 38 per cent for pensioner couples in 2021/22. This rises to 61 per cent for single female pensioners over 75.

In total, 97 per cent of pensioners are receiving the state pension while 21 per cent are receiving income-related benefits - a decline from 23 per cent in 2019/20.

Understanding benefits

Stephen Lowe, group communications director at Just Group, said: “Alongside the state pension, pensioners also need to make sure they are claiming all of the benefits they are entitled to such as pension credit. 

“Insight from Just Group’s customers finds that six in 10 pensioner homeowners entitled to benefits are failing to claim and missing out on income of around £1,100 every year.

"Getting professional, regulated advice, when possible, would always be our strongest recommendation to support people to make good decisions with their pension savings as they approach retirement.