Retired see income soar but downturn leaves working people worse off

Updated: 

Retired households' incomes have soared in recent years, while those of a working age still have less money than they did before the economic downturn, according to an official report. 

A typical UK household's disposable income was £26,300 in 2015-16 - £600 higher than the previous year and about £1,000 higher than the pre-downturn peak in 2007-08, according to the Office for National Statistics (ONS).

But while retired households are about £2,500 or 13% better off than they were in 2007-08, non-retired households are still about £300 or 1.2% worse off. 

The report said retired households' incomes remained "considerably lower" than that of non-retired households. However, retired households have seen faster growth in their incomes, adjusted for inflation, over recent years.

By 2015-16, the typical income of retired households had nearly tripled compared with levels in the late 1970s, to reach £21,800 - 2.8 times what it was in 1977.

At £28,500, the income of non-retired households has doubled from its 1977 levels.

The ONS said the growth in the incomes of retired households since 2007-08 has been driven by several factors, including rises in the amounts of pension cash being received. The state pension "triple lock" guarantee has also boosted incomes.

Meanwhile, the fall in the average disposable income for non-retired households after the economic downturn largely reflected a fall in income from employment, including self-employment, the report said.

Claudia Wells, a senior statistician at the ONS, said: "Household incomes are above their pre-downturn peak overall but not everyone is better off.

"While retired households' incomes have soared in recent years, non-retired households still have less money, on average, than before the crash."

The ONS said there has been a gradual decline in income inequality in the past 10 years, with levels now similar to those seen in the mid to late 1980s.

It said cash benefits and direct taxes have led to income being shared more equally between households.

The typical disposable income for the poorest fifth of households increased by £700 in 2015-16 to £13,600, while the typical income of the richest fifth of households fell by £1,000 to £53,400.

Matt Whittaker, chief economist at the Resolution Foundation, said: "While traditional income inequality has been falling - for now - new living standards divides between generations have opened up as working age households continue to struggle."

Alistair McQueen, head of savings and retirement at Aviva, said: "Rising incomes in retirement is a good thing, however the divergent experiences of the retired and non-retired will place increasing political pressure on the state pension triple lock."

Chancellor Philip Hammond said: "Our reforms to the tax system mean hard-working people are keeping more of what they earn.

"Increases to the personal allowance have taken millions out of income tax altogether and reduced tax bills for some of the lowest earners by £1,000 a year."