Personal Investing
Ed Monk 17 Aug 2017 05:42pm

40 years of improved – but less equal – pensions

However the grim news on retirement incomes seems at times, it’s important to remember how far we’ve come
Caption: Although the pot has improved, it' hasn't for everyone

Analysis out this week from the Office for National Statistics (ONS) charts the incomes of those in retirement going back 40 years and shows that, in aggregate, pensioner households have been getting steadily better off.

Back in 1977, just 21% of retired households - defined as one where most of the income comes from retired people - had income greater than £10,000 in today’s money. In other words, being retired very often meant being poor.

Fast forward to 2016 and that figure had risen to 96%. Moreover, more than half of today’s retired households can rely on income above £20,000.

The ONS said the reason for the increase in income is the increased prevalence of private pensions. The state pension has become more generous over the years, but it is private pensions that have done the heavy lifting.

Good news in general, but there is trouble lurking in the ONS data - a growing level on inequality between retired households. It stands to reason that the income of those without private pension savings will do less well but the data shows that, since the financial crisis, these people have actually become worse off in real terms.

Prior to that, even without private pensions, they could at least say there were getting richer, albeit more slowly that those with private pension savings. That no longer holds true.

The retired population is becoming more stratified according to income. If the trend continues, fault lines will increasingly open up between those with more lucrative private pensions, including defined benefit schemes, those less generous schemes, and those with nothing but whatever the state pension yields.

Another important dividing line is property ownership. The ONS data does not take account of the rising cost of housing, which means those living in retirement while continuing to pay rent or a mortgage will be worse off than these figures show.

All this underpins once more why your retirement income is increasingly the result of choices you make, or rather the choices your income allows you to make.

We’re moving from a world when most people’s retirement looked the same to one where there are marked differences. In some ways that’s good - the income and living standards of the poorest pensioners has been rising in real terms for most of the past 40 years.

But it also opens the possibility that more will sleepwalk into retirement with income some way below what they hoped and expected.

It underlines the importance of retirement saving, and of the auto-enrolment policy that will pull more people into private pension schemes.

While fewer and fewer of us can rely on a defined benefit work pension to pay us a guaranteed income in retirement, many of us can help ourselves by maximising the benefits of any defined contribution scheme available. This is important because your contributions may be matched by your employer, while also being helped by tax relief.

After that, ensure your money is invested in a way that gives you a chance of building a pot to match your retirement expectations, while taking a level of risk you’re happy with and that fits your investing time horizon.

Ed Monk

Ed Monk

Ed joined Fidelity in 2016 following a 13-year career in newspaper journalism, most recently as investment editor at The Daily Telegraph. He was previously news editor and personal finance editor for, the money channel for Mail Online and has contributed articles to the Daily Mail.

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