The average weekly income of recent retirees is one fifth (20%) higher than that of older pensioners, according to Aegon’s analysis of the latest Government figures.
Analysing the data in the Pensioners’ Income Series published annually by the Department for Work and Pensions (DWP), the net average weekly income (after tax, national insurance (NI) and council tax) of recently retired* pensioner households is £392, while the net average weekly income of non-recently retired pensioner households is £326. This represents a 20% difference between recent retirees and older pensioners.
The reason for this income difference is due to the fact that many retirees are now transitioning into retirement by continuing to work but reducing their hours, instead of completely stopping work as soon as they decide to retire. According to the data, over a quarter (26%) of recent retiree income is from earnings compared to just 13% for older pensioners**. This seems to be a growing trend as DWP figures show that 17% of pensioners were in receipt of earnings in 2017/18 compared to 12% in 1997/98.
Steven Cameron, pension director at Aegon, said: “The Government figures show that older pensioner households are lagging behind recent retirees when it comes to their income. Changing retirement patterns could be a reason for this as many people are now adopting a transitional approach to retirement by continuing in employment after traditional retirement ages, while reducing their working hours over a period of time rather than a ‘cliff edge’ approach.
“The figures show that since 1995, earnings income for new retirees has more than doubled from an average of £64 to £168 per week on top of personal and state pension incomes.
“For individuals in the early stages of retirement, many of who are in the baby boomer generation, pensioner poverty generally is at an all-time low, but as these figures are based on average (median) incomes, it must be remembered that there are many retirees with incomes substantially below the average figures.
“The retirement income of the post-war generation has been boosted by favourable economic conditions. Many but by no means all retirees will also be benefiting from generous defined benefit pensions, but this feature will tail off for future retirees, making it unlikely that each future wave of newly retired will have average incomes higher than the previous one.
“Policymakers need to ensure they look at the changing income profiles of pensioners to understand the distribution of wealth across this large and growing proportion of the population. Adopting a ‘one-size fits all’ approach would be dangerous and risks overlooking what can be significantly different financial challenges facing pensioner groups of different ages and wealth.”
Those planning for retirement should also be aware that while they might enjoy a higher income by working during their transition into retirement, they might face higher outgoings than today’s pensioners. For example, on the same day that Aegon reported on the increase in new retiree pensions, the BBC announced plans to end free TV licences to pensioners, except those who receive pension credits.
* A pensioner unit is defined as ‘recently retired’ if the head of the unit is less than five years above the State Pension age.
** For pensioner couples, the ‘head’ of a pensioner unit is the member of the household with the highest income
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