By Dale Critchley, Workplace Policy Manager, Aviva
Just how important the state pension is to current pensioners was revealed in figures released by the Department for Work and Pensions (DWP) recently .
Amongst the lowest income pensioner households, the state pension, and other benefits - means tested and disability benefits - make up most of their income. A large proportion of the income for couples (79%) and single pensioners (87%) in the bottom fifth comes from these benefits. These are the pensioners for whom the state pension and inflation-linked increases are vital. Those pensioners who are just getting by in retirement.
However, DWP data reveals that half of pensioners are in the top 50% of UK household incomes. So, what makes the difference between just getting by, and having more money to enjoy life?
If we look at pensioners with incomes in the top fifth, we see that benefits still make up 16% of income for couples and 29% of income for singles. The state pension is still important, but it is workplace pension income that makes the biggest contribution, with 40% of income amongst higher income couples coming from workplace pensions.
Earnings also make a big contribution to the income of the most affluent pensioners. It is more common in pensioners aged under 75 than those who are older, but those pensioners who can keep working are more likely to find themselves better off.
The state pension is clearly important to everyone, but especially to those pensioners with the lowest income. However, the DWP’s data shows it is workplace pensions that can make a real difference to retirement.
Automatic enrolment means more people are set to have a workplace pension in the future. However, the contraction of defined benefit provision increases the risk that the incomes of future pensioners might be lower than those today. To maximise the number of pensioners who experience a comfortable retirement, we need to ensure that high quality workplace pension provision is maintained.
It is important that savers pay their workplace pension some attention. Savers need to be aware that their workplace pensions might not provide the levels of income that previous generations of workers were afforded, and they need to understand how they can make a difference.
Employers also need to provide the right support to ensure their people can continue to work for as long as they are comfortable, to boost their income and allow the maximum time for saving.
Finally, it is important that savers can make informed choices when it comes to converting their pension pot into an income that will last for as long as they do.
The state pension is hugely important and remains the bedrock on which savers can build their own comfortable retirement futures.
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