Pensioners earn more than working people

Why have pension incomes soared past wages?

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Affectionate mature couple walking on the beach

For the first time in history, retired people in the UK have 5% more cash coming in than those who are still working. A report by the Institute of Fiscal Studies has revealed that generous final salary pensions and protected state pensions have pushed average retirement incomes above those of struggling working families.

So does this mean cash-strapped young people can look forward to a golden future in retirement?
Typically we have come to assume that working people are better off than pensioners. In 1992, for example, the average pensioner income was 20% lower than the incomes of those of working age. Even in 2007 their income was 5% less than those in work.

However, the IFS has found that since the onset of the recession, everything started to change, as the incomes of those in work fell. Since 2007 the average household income of those aged between 22 and 30 fell 13%, while for those aged 31-59 it dropped 7%, and for those aged 60 and above it didn't fall at all.

Everything you need to plan your retirement

Why?

Working people are at the mercy of two forces: the first is that more people are out of work. The employment rate of those aged between 22 and 30 fell 4 percentage points, while it stayed the same for older workers. The second factor is that those in work are seeing pay fall: real average pay has dropped 15% among 22-30-year-olds and 6% for older workers since the onset of the recession.

At the same time, life for people over the age of 60 has been getting better and better. Pensioners have continued to receive state pensions - which have been protected from cuts and linked to inflation. Many of them have also been in receipt of generous final salary pensions which secure them a guaranteed income for life - often linked to inflation.

So while the incomes of those in work fell, the incomes of those in retirement have been rising with inflation. Retired people first overtook those in work in 2009-2010, but by last year they earned 5% more than working people.

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What next?

Unfortunately young people today don't even have the comfort that once they get into retirement they'll be in receipt of the kind of secure and generous income that the baby boomers are currently enjoying.

Scottish Widows has calculated that just 40% of women and 49% of men are preparing adequately for later life. Meanwhile some 37% of women and 27% of men have made absolutely no provisions for retirement at all.

Of those who have made some provision, these are not generous final salary schemes through work, which guarantee a specific income for life - linked to inflation. They are defined contribution pensions into which people pay and hope that somehow they will invest enough, and their investments will grow enough, for them to be able to buy an annuity which will bring them enough money to live off. Unfortunately none of those things are guaranteed.

There are those who suggest that the ultimate result of all of this will be tension between the generations and a possible backlash from young people. There are others who argue that the Bank of Gran and Grandad will help ease those tensions and close the generational gap.

What do you think? Share your thoughts in the comments sections below

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