UK pensioners of the future will need to provide for themselves more in retirement, as a downward trend in the proportion of income pensioners receive from the State continues, official figures released by the Department of Work and Pensions on Friday reveal.
Stephen Lowe, group communications director at Just Retirement, a UK pensions specialist, said that the increasing reliance on private sources of income to underpin living standards highlights the need for “pensioners of the future” – ie, those still in work – to think about generating sustainable income throughout their retirement.
“The trend is that the proportion of income from state pension and other benefits is on a long-term downward trajectory, from 61% of income in 1979 to 43 per cent in 2013/14,” he said. “Almost all (97 %) pensioner households receive a state pension, but the number receiving income-related benefits has more than halved since 1979, to 27%.”
Lowe is concerned that the promise of a quick financial fix, which many see as being offered by the new pension freedom rules, could have serious impact on some individuals’ futures, and warns about the impact of taking money out of pension pots rather than leaving it in place.
“Once you get into your mid 70s, you are still likely to live between one and two more decades [longer than previous generations], and while the state may cover your basic living costs, it will be private pension income that is most likely to lift your living standard closer to where you want it to be,” he added.
Private pensions doubled since 1979
The statistics released by the DWP last Friday, highlight the fact that when one looks at overall pensioner income – including earnings, benefits, investment and all pensions income – it is private pensions that are increasing in proportion relative to state pensions, doubling since 1979 to 32% in 2013/14.
“Although tax-free investments such as PEPs and ISAs have been around for many decades now, investment income is actually becoming a smaller proportion of overall pensioner income, down to 8% from 12% in 1998/99,” added Lowe.
To read and download the DWP’s latest pension data, click here.