The wealth gap between retirees and workers has accelerated since the recession, as pension incomes rose while pay remained stagnant, according to a report released today.
Since 2008 the average retired household income has grown by almost a third, outstripping inflation by 14.3%, according to calculations by insurer Canada Life. By contrast, working households have seen their incomes fall by 4.4% in real terms.
Pensioners benefit from a triple lock system protecting their income, with state pension payments guaranteed to rise in line with whichever is the highest of earnings, inflation or 2.5%. So even though pay didn’t rise, their incomes were boosted by inflation.
Over the past 20 years the average retired household income has gone up by 77% in real terms, compared to just 49% for workers. The average income for a retired household now stands at £23,695, compared to £10,427 in 1995. By 2025, calculations estimate that retirees will receive 18% of all UK income, compared to just 13% in 1995. Their total incomes will have risen more than fourfold in 30 years, and will have tripled on a per household basis.
Richard Priestley, exective director of retirement income at Canada Life, says: “The financial firepower of the UK’s growing silver army has rocketed in the past 20 years, as the rising population is combining with a rapid increase in retirement income. Older people have higher incomes than ever before, both in absolute terms and compared to the wider population. Even during the recession average retired household incomes increased in real terms, while the wider population saw its living standards shrink.”
But this could be set to change, says Laith Khalaf, pensions expert at Hargreaves Lansdown: “Wages have been sluggish since the financial crisis, but are finally coming through at around 3% for full-time workers. I’m surprised as retirement incomes have been hit by record low interest rates and lower annuity rates.”
The Office for National Statistics released its annual survey of hours and earnings last week for the year to April 2015. It shows that the hit to wages from the financial crash was huge. Tens of thousands of workers took a cut in wages, lost overtime payments or shifted to part-time work to retain their job during the recession, according to the survey. It’s only in the past couple of years they have started to claw back some of their lost earnings.
According to the Resolution Foundation, a rise of £2.55 per hour would be needed to eradicate the effects of the crash altogether.
