About a quarter of adults in the UK are pensioners, which means they are over the current state pension age of 66.
The income trends of this group of people have a big effect on the country’s general living standards. However, only a small proportion of pensioners make a good living from work, while most working-age families get most of their money from work. Instead, most of their money comes from pensions, which can be public or private. Over time, policy changes, changes in job trends, and the types of pension plans companies offer have all influenced pension wages.
Based on a 2024 IFS report on UK’s poverty and living standards, after housing expenses, the typical pensioner income in 2022–23 was £533 per week, compared with £589 per week for working-age individuals – a difference of around 10%. Nevertheless, this minor difference shows a reduction, over time. Between 2002–03 and 2007–08, pensioner incomes increased by 3.4% annually, while working-age households saw a growth of 0.8%. After the financial crisis hit, working-age households saw a 3% drop in real income, while pensioner income rose by 22%. From 2011 to 2022, both groups had income growth rate of around 12–13%.
State pensions and private pensions experienced a real-term decline between 2020–21 and 2022–23. In April 2022, state pensions were raised by 3.1% in accordance with inflation rates from the previous September. Unfortunately, inflation had reached 9% during this time, resulting in a real-term decrease in the purchasing power of pensioners. Real-term declines were also observed in private pensions, particularly defined benefit (DB) schemes. The annual increases of the majority of defined benefit (DB) schemes are restricted to 2.5% or 5%, indicating that inflation has exceeded that of pension increases. Defined contribution (DC) pensions, which allow individuals to withdraw from a pension fund, also experienced a decrease in withdrawals during the pandemic, which contributed to a decrease in private pension income.
Pensioners’ income is substantially determined by their housing tenure. In 2022-23, about 74% of pensioner households owned their houses, while only 23% of working-age households did. This mismatch results in much reduced housing expenses for pensioners, as just 5% are private renters and 4% own houses with mortgages. In contrast, 35% of working-age households continue to have mortgages, while 23% rent privately. As a consequence, pensioners are less vulnerable to property market swings like increased mortgage rates and rents.
Pensioner poverty rates have followed a “U-shaped” pattern since the early 2000s. Back in 2002–2003, a quarter of pensioners were living in poverty, which meant that their income was below 60% of the median household income. This number decreased to 13% by 2011. Unfortunately, it rose again to 16% in the year 2022. The reason behind this upturn is attributed to pensioners with lower incomes not reaping much benefit from rising private pension incomes or employment income compared to pensioners who fall in middle- or higher-income categories. Furthermore, the number of low-income pensioners benefiting from pension credit has dropped. As of 2021–22, just 60% of pensioners eligible for pension credit claimed the benefit.
The inability to afford essential goods and services has risen among pensioners since the COVID-19 pandemic. During the period of 2022–23, 4.8% of pensioners indicated that they were unable to afford heating for their homes, marking a significant increase from 1.7% in 2020–21. Furthermore, the percentage of pensioners who reported experiencing difficulty paying their regular expenses increased from 1.4% in the previous period to 2.7%. Despite all this, the overall rates of material deprivation for pensioners are still lower than they were in the early 2010s, although the recent cost-of-living crisis has undone some of the progress made.
Over the twenty years or so, the gap between low-income and high-income pensioners has gotten wider. From 2002 to 2011, the poorest pensioners saw their income increase by 14%, but those in the high- and upper-income brackets saw a 22% and 19% increase, respectively. However, since 2011, the income growth for low-income pensioners has slowed down significantly, with a 5% increase from then until now in 2022. Meanwhile, middle- and high-income pensioners had a 12% to 13% income growth during the same period.
State pension reforms implemented since 2010 have played a role in influencing the incomes of pensioners, impacting women in particular. Before these reforms were put in place, women used to receive significantly lower state pensions compared to men; for instance, women born from 1940 to 1944 received less than 80% of the state pension that men from the same group received. In contrast, women born between 1950 and 1952 receive 90% of the state pension that men in their cohort get. Reforms that boosted credits for childcare time have played a role in narrowing the gender disparity in state pensions.
The reforms have also influenced general pensioner earnings. For example, women born between 1953 and 1954, enjoyed a 21% rise in state pension earnings compared to women born in the late 1940s; males in the same age range only saw a 5% rise. Though earnings have increased, relative poverty rates among women have stayed mostly steady, suggesting that they have not matched the median family income even with these advances.
Over the years, there has been a decrease in other state benefits for pensioners. This decline has hit the poorest pensioners the hardest. In 2002–03, 13% of pensioners were in the income bracket, bringing in less than £5,000 annually. By the year 2019-20, the percentage increased to 10%. Meanwhile, pensioners making over £30,000 annually increased from 18% to 35%. While this change shows that more pensioners are doing well in terms of enhanced incomes, it’s also a sign that the gap between the rich and poor is growing wider.
Although the average incomes of pensioners have increased in the twenty years, there has also been a rise in income inequality, especially between pensioners with lower and higher incomes. The challenges of living costs and inflation have hit lower-income pensioners disproportionately, resulting in an increase in material deprivation despite government assistance. While other state pension reforms are on the way, the government must make sure everyone has a decent standard of living, no matter how much money they have.