The rise and fall of the rich pensioner

When I was a kid old people weren’t very well off. The words poor and pensioner often went together. I remember a poster (presumably by one of the age charities) which I used to pass on the way to my swimming lesson. It said something like, “Poverty and loneliness, the punishment for old age.”

That would have been sometime around 1972 when, as the FT explained earlier this week, the average pensioner’s income was in the bottom 20 percent.

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It’s not like that now though. Forty years on, older people aren’t doing too badly. These days, you’re more likely to hear people talking about rich pensioners than poor ones.

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I wonder how long this will last.

Earlier this week, the Ernst & Young ITEM Club reported that much of the increase in the workforce over the past five years has been due to older people either staying in work or going back to work. Rising participation by older age cohorts, it says, has added even more people to the labour force than immigration. People who ten years ago might have retired are now staying in work.

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Some of this has happened because state pension age for women has risen and the statutory retirement age has been abolished. But, says EY, some of it is caused by deficient pension provision and this is likely to get worse.

[G]rowth in elderly employment also
looks to be a symptom of the need of many to keep
working in order to supplement squeezed
retirement incomes, in part a consequence of rock-
bottom annuity rates. The historical association between movements in annuity rates and participation by older people in the labour market certainly points to this being an important driver.

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As pension incomes fell, first the over 50s and then the over 65s began to think again about retiring. The 1980s and 1990s were the heyday of early retirement. The proportion of older people working has been creeping up ever since.

EY think this will continue:

[I]t is likely that the steady upward trend in participation amongst the older age groups will continue, with greater longevity and deficient levels of pension saving remaining important drivers.

They’re probably right. The number of people in defined benefit pension schemes has been falling steadily too.

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Source: DWP

The DWP forecasts that the average defined benefit payment is about to go into a steep decline.

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Source: DWP

With even companies like John Lewis abandoning their final salary schemes and many company pension schemes underfunded, the days of generous retirement plans seem to be well and truly over.

As for the future of defined contribution schemes, that just looks plain scary.

Today’s pensioners are only well off because they lived and worked through a lucky half-century. The generous pensions they enjoyed look as though they will be a historical blip. Fifteen years from now, when the next demographic bulge retires, their incomes will nowhere near what retired people are on now. The stereotype of the rich pensioner is on the way to being obsolete.

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12 Responses to The rise and fall of the rich pensioner

  1. John says:

    I don’t disagree with what you say in the article but there are some other factors which apply too.
    I am 70 now but I only stopped working when I was 67. What kept me working was because I had a managerial position and I needed to train-up a suitable replacement person, which took me several years before I felt confident about handing over the reins to a younger person.
    To some extent, I continued working too because I enjoyed working – it gave structure to my life.
    The extra income was handy, but no more.
    I do not consider myself to be a wealthy pensioner. On a chart above, the median pension is shown as £19,344 after housing costs for pensioners in the age range 70 to 75.
    My income is actually lower than that though I own my home outright so have no housing costs.
    I note also that there are some pensioners receiving more than £100,000 per year.
    This all just goes to show that significant inequality persists even after people end their working lives – and that is probably what a progressive future government will have to address.
    Yes, I have friends who take one or more ocean-going cruises each year, though some of them are getting tired of that kind of activity.
    Like many other people I know, I now spend a lot of time on voluntary activity, chairing a number of local organisations and being very active in other political and environmental ones.
    I perceive myself and others as providing the social “glue” for local activities which benefit others.
    We are part of the forces of social cohesion and social stability – which should not be forgotten.

    • Pete says:

      I don’t disagree with your comments, and while slightly off-topic, it’s worth noting that many two-parent-2.4-children families would the spending power of £19,344 (after housing costs) – with pertinence on the ‘after housing costs’. This same data set also tells us a lot about relative wealth, which as Rick points out, doesn’t currently match our (now outdated?) stereotype of pensioners unable to pay for more than one light on the three-bar fire. And it certainly doesn’t chime with the Prime Minister’s depiction of pensioners from earlier in the week.

  2. Dave Timoney says:

    One aspect of the increased retirement age that I don’t think has received sufficient attention is its impact on productivity. A lot of routine productivity growth is simply the result of labour churn, i.e. bringing in fresh minds with more up-to-date skills and a willingness to experiment. This tends to be amplified if the outgoing bod has been in position for a long time, and therefore likely to be set in their ways.

    We can think of the human capital dimension of productivity growth as a race between youth (or immigration, which is a substitute) and age, which obviously adds to the regrettable intergenerational conflict vibe. More profoundly, this suggests that the “demographic challenge” is feeding secular stagnation not just through low interest rates (due to increased savings) and low demand (due to lower marginal consumption) but also through depressed productivity.

  3. if the government hadn’t trashed occupational pensions and put the retirement age back, pensioners could have retired so freeing up jobs for younger people.

  4. SK says:

    This is an expected problem when BoE reduces annuity rates through QE and creates asset bubbles through low rates.

    BoE is to blame since the people in their 20s/30s/40s loose the compound interest and they spend much of their income in ridiculous housing costs.

    When they now retire they wont have much assets (look at house/debt owning percentage falling) and not much savings.
    Thus BOE is creating generations of poor pensioners in order to sustain a ridiculous housing bubble.

    Raise rates now. Stop the housing ponzi.

  5. Pingback: OK – Old displace young on income ladder | Job Market Monitor

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