Private pension income gap widens, figures show

London stock
London stock

The retirement income gap between households with a private pension income and those without is growing, according to Office for National Statistics (ONS) figures.

By 2016, retired households receiving a private pension had disposable incomes that were around 1.6 times higher than households that were not.

Between 1977 and the financial year ending 2016, the disposable income of retired households increased at an average annual rate of 2.8% after accounting for inflation and changes to household composition, the ONS said.

This compares with average annual growth in non-retired households of 2.1%.

The average disposable income of households with private pension income has grown from £2,300 in 1977 to £27,800 in 2016.

Meanwhile, the average income of households without private pension income has increased from £1,700 to £17,200 over the same period.

In the financial year ending 2016, those with a private pension had average original incomes which were around 14 times higher than those who did not receive any private pension income - at £19,000 compared with £1,300 respectively.

Original income is money which does not come from government intervention. It does include money earned from employment and investments, for example.

The ONS said that 40 years ago, in 1977, just over a fifth (21%) of retired households had an annual disposable income of over £10,000, after accounting for inflation and household composition. But by 2016, this had surged to 96% of retired households.

More than half of the income increase between 1977 and 2016 was due to an increase in private pension income, which has increased nearly sevenfold over the period, the ONS said.

This is due to both an increase in the proportion of households receiving private pension income and increases in the amounts they receive.

Workplace pensions, individual personal pensions and annuities were classed as private pensions for the findings, while the state pension was put in the category of a cash benefit.

The ONS said that although since the financial year ending in 2011 the average value of cash benefits for retired households has generally been increasing, "those without any form of private pension income are not having their incomes supplemented enough by these cash benefits amounts to reduce overall inequality in income".

It said that while inequality between retired households has shown increases in recent years, "they remain small relative to increases in income inequality for retired households seen throughout the 1980s".

As housing costs have risen over this period, those households with rent or mortgage payments will generally be worse off compared with households that own their property and have paid off their mortgage, the ONS said.