Stephen Lowe, group communications director at Just Retirement, said that the increasing reliance on private sources of income to underpin living standards highlights the need for pensioners to think about generating sustainable income throughout retirement.
“The trend is that the proportion of income from State pension and other benefits is on a long-term downward trajectory from 61 per cent of income in 1979 to 43 per cent in 2013/14,” he said. “Almost all (97 per cent) pensioner households receive State Pension but the number receiving income-related benefits has more than halved since 1979 to 27 per cent.
“Against this is a rise in the proportion of income from workplace and private pensions. Back in 1979, for every pound of income from the State there was about 25p private pension income whereas now the amount from private pensions is more like 65p and heading higher. When you look at overall pensioners' income - including earnings, benefits, investment and all pensions income - it is private pensions that are increasing in proportion, doubling since 1979 to 32 per cent in 2013/14.
“Although tax-free investments such as PEPs and ISAs have been around for many decades now, investment income is actually becoming a smaller proportion of overall pensioner income, down to 8 per cent from 12 per cent in 1998/99. This trend predates the 2008 global financial crisis so is not just due to post-crash economic measures depressing returns, but more likely due to people taking advantage of wider provision of workplace pension schemes as their main method of long-term saving.
“A final point is that these figures reinforce the fact that average income falls with age and the proportion of income sourced from the State increases. Those pensioner households where one individual is aged over 75 get more income from State benefits but have less income overall than younger pensioners or the recently retired, even excluding the effect of any earnings.
“That really highlights the difficulty of maintaining the real value of income over the decades, which perhaps sends a signal to those thinking of taking money out of their pensions under the new pension freedom rules. Once you get into your mid 70s you are still likely to live between one and two more decades and while the State may cover your basic living costs, it will be private pension income that is most likely to lift your living standard closer to where you want it to be."
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