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16 Aug 2017

Private pensions boost retirement income by £10,000 a year

Pensioners´ incomes have risen dramatically over the past 40 years because growing numbers of people have been investing in private and workplace pensions.

In 1977, only 45% of retired households received income from private pensions (including workplace pensions, individual personal pensions and annuities), compared with nearly 80% last year, the Office for National Statistics (ONS) said.

However, the income gap between those who only get the state pension and other pensioners is getting bigger.

Retired households with a private pension are now around £10,000 a year better off, with an average disposable income of £27,800, compared to £17,200 for those without a private pension.

The ONS study also revealed that private pensions now make up 43% of people´s retirement incomes. In 1977, just a quarter of people´s total retirement income came from private pensions.

In contrast, despite the state pension rising rapidly over the past six years thanks to the “triple lock” guarantee, it now represents 38% of people´s retirement income, down from 53% some 40 years ago.

The research underlines the fact that private and workplace pensions are key to ensuring a comfortable retirement.

Commenting on the ONS figures, Steve Webb, director of policy at Royal London, pointed out that the significant growth in pensioner incomes is driven by people retiring with good company pensions.

“But today´s workers are not building up pensions that are anywhere near as generous,” he added. “Whilst pensioner poverty rates have dropped sharply this could go into reverse if today´s workers do not build up their own pensions at a much faster rate than they are at present.”

Steven Cameron, pensions director at Aegon, also warned against complacency.

“A rising state pension age, the recent threat to the triple lock, and slow demise of ‘gold plated´ pensions, means that this golden age of retirement is unlikely to last for much longer,” Cameron explained. “As an ageing population puts greater pressure on public services the government will look to put its finances on a stable footing, as we´ve seen with recent suggestions for social care reform. Ultimately, we´re likely to see yet further individual responsibility given to people, to support themselves in their old age.

“Anyone who wants to ensure that they have sufficient income for a comfortable retirement and the means to supplement social care costs in old age should consider talking with a financial adviser to review both their workplace and private pension provision. For younger generations the message is clear — get into the savings habit as early as possible in your career.”

Copyright © M2 Bespoke 2017

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