I have written here several times before that pension deficits in the UK must be holding down in the UK. That's partly because the ongoing liability deters capital investment – one of the factors that is keeping productivity and hence wages down. But it is also about simple short-term affordability.
Firms who have to keep contributing large sums of money to the pension funds they sponsor and who know they are more than likely to have to keep doing so for many years to come are, I said, surely less likely to feel able to raise wages than those who do not.
So the low base rate that gives us the low bond yields that create theoretical pension deficits (see previous blogs on this – the deficits are as much a function of trustee behaviour as reality) keeps wages low too. Modern monetary policy isn't good for workers.
The problem with this idea so far has been that there hasn't been any empirical research backing it up (it seems like common sense but not all common sense turns out to be correct sense). However the Resolution Foundation has just come out with a bit of research that begins to make the case.
According to its analysis, reported in the FT, around 10% of the total paid into pension funds to make up deficits over the last 16 years has been "funded by suppressing wages". The result is that workers in companies with defined-benefits pension deficits are paid on average £200 a year less than those in firms without them.
This matters hugely for all sorts of reasons. It is demoralising for workers and expensive for the taxpayer: we subsidise low wages via the tax credit system. And it exacerbates the tension between generations: young and low-paid workers end up taking the hit for deficits in the kind of pension funds that will never pay out to them (85% of defined-benefits schemes are closed to new members).
It is something else to add to a long list of evidence that very low interest rates might be doing much more damage than they are good. It is past time for normalisation.
How we spend our pensions
How we spend our pensions
Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.
A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.
Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.
Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.
Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.
A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement
Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.
Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.
Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.
The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.
While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.
Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to Unbiased.co.uk - because while baby boomers know how to have fun - they also know how to save for the future.