Alistair McQueen, Head of Savings and Retirement at Aviva, comments on ONS figures for Household Disposable Income and Inequality Data, financial year end March 2016: “Today’s ONS inequality data* is a tale of the haves and the have nots - when comparing retired and non-retired households. The median income for retired households has soared 13% above the pre-downturn levels of 2007/08, while non-retired households have experienced a 1.2% fall. The state pension triple lock has been a key driver behind this improved position for retired households, by guaranteeing an annual increase of at least 2.5% since 2010.
“However, the importance of private sources of income in retirement is arguably making a bigger difference. For the first time, retirement income from private sources - pensions, annuities and investments - now represents more than half (52%) of median incomes in retirement. When records began in 1977, private sources of income represented just 33% of median incomes in retirement.
“Rising incomes in retirement is a good thing, however the divergent experiences of the retired and non-retired will place increasing political pressure on the state pension triple lock. Government policy is beyond an individual’s control, but private planning is not. It is therefore increasingly important for people to take control of their own retirement planning. Private sources of income will increasingly determine people’s financial wellbeing in retirement in the years to come.”
Commenting on the figures, Malcolm McLean, senior consultant at Barnett Waddingham, said; “It is good to note the average UK household saw their disposable income rise by £564 last year compared with the previous year, after the rising cost of living, measured by inflation, was taken into account.
“As the ONS points out however, looking back over a longer period whilst household incomes are above their pre-downturn peak overall not everyone has gained equally or is better off.
“The pattern of change since the start of the economic downturn in 2007/08 has been very different for retired and non-retired households. While retired households' incomes have soared up 13%, non-retired households still have less money, down 1.2% on average, than before the financial crash.
“The growth in the incomes of retired households since 2007/08 has been driven by a number of factors. One is a rise in both the amounts received and the number of households reporting receipts from private pensions or annuities. Another is an increase in average income from the State Pension, due in part to the effect of the "triple lock". The fall in average disposable income for non-retired households after the economic downturn reflected largely a fall in income from employment, including self-employment.
“This is all bound to add “grist to the mill” on claims of intergenerational unfairness and renew the possibility of the Government backing away from a renewal of the triple lock in 2020. They will be pleased, however, as we all should be, to note the growth in private pension saving and the contribution it is making to retired householders’ income now and hopefully more so in the future with the spread of auto-enrolment and other initiatives.
“Although we are probably still a long way short of an earlier government’s policy aim to have 60% of a pensioner’s income from private saving with 40% only from the state, increased private saving has to be good news for all concerned.”
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