Why pension incomes are higher than working age incomes


Pensioner incomes are £20 a week higher than their working-age counterparts, having risen by 31 per cent over the last 15 years, according to a new report by the Resolution Foundation.

Back in 2001-02, pensioner incomes were £70 a week lower than typical working-age incomes. The rapid increase is due to guarantees such as the triple lock, generous defined benefit schemes, house ownership and longer employment in old age.

These drivers have propelled tens of thousands of pensioners towards the high end of the income scale. Meanwhile, many working households languish at income levels below those they enjoyed before the financial crisis.

Of the 31 per cent rise in typical pensioner incomes one quarter was due to increased employment rates, while increases in private pension and investment income accounted for around half of the 31 per cent increase.


The report states: 'The closure of generous defined benefit occupational pension schemes to younger workers mean that future gains of this scale are more questionable - particularly against a backdrop of the recent lost decade (or longer) on pay growth.'

The remainder of the increase in pensioner incomes comes from growth in public benefits - largely before, but including, the introduction of the state pension 'triple lock'.

As a result pensioners, rather than workers, are pushing up average incomes in the UK. In the long run, this is damaging: it limits the ability of businesses to invest in future projects and it fuels generational inequality.

Over the course of the 20th century, years of economic growth and rising living standards, the incomes of each generation were higher than those of the preceding generation.

The report states that previously, each new generations' incomes were 50 per cent higher than before: average baby boomer incomes at age 55 were £10,000 higher than among members of the silent generation at the same age, and average silent generation incomes were in turn £6,000 higher at age 55 than those recorded by the greatest generation.


But this trend has reversed for the millennial generation, which is worse off than the previous generation. The report further points out that pensioner poverty is now less prevalent than working-age poverty.

But not all pensioners are equally well off as the picture is nuanced: it is important to note there are still about 2 million pensioners below the poverty line in the UK.

The large gap between the richest and poorest fifths of pensioners is notable. The wealthiest group has very different sources of income from the least well off group.

The richest fifth have a range of income sources - including employment and investment income. In contrast, the poorest fifth rely almost exclusively on benefit income.

In fact, the report states that given the splits between working and workless pensioners, 74 per cent of gross employment income goes to the richest 20 per cent of pensioners, and 80 per cent of self-employment income.

The report adds: 'This strong growth is not the result of a boom time for all pensioners, with most finding that their personal situation changes little from year to year.'

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No real surprise that the top

No real surprise that the top 20% of working pensioners (who no longer pay NI contributions) have a £20 higher income than the average worker. A better headline would have been, "2 million pensioners still below poverty line despite increases from triple lock".

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