Current retirees born in the 1940s are living comfortably of their lucrative pensions, and have easily had enough funds to finance their lifestyles over the past decade, which has been characterised by fiscal turmoil for the majority of the population.
According to a report released by the Institute of Fiscal Studies (IFS), which juxtaposed retirees current income with their average earnings throughout their working lives, 80% of couples born in the 1940s raked in the equivalent of 2/3 of their average wages whilst employed, through their annual state & private pension income. Roughly 40% of retirees raked in pension incomes greater than their average working earnings after inflation.
In considering the basis for meaningful deductions, IFS analysts set 2/3 of retireesí past earnings as the signpost for average pensioner living standards. This figure took into account a retiree not having to financially support dependants, not having to contend with mortgage repayments and not having to make pension payments. When the considerable appreciation in value of assets, most notably houses, is gauged – especially in view of the housing boom under the Thatcher government ñ the excess cash afforded to a pensioner, on top of what the IFS deems suitable for living, amounts to £220,000 according to the data.
The IFS said: ì92% of couples born in the 1940s have accumulated more wealth than the model suggests they need to maintain their standards of living into and through retirement. The surpluses are substantial on average ñ the median surplus being over £220,000, which would be enough to produce around £7,000 a year of income if used to buy an index-linked annuity.
ìEven excluding housing wealth, 75% of couples have more wealth than the model suggests they need to maintain their standards of living. The median surplus is over £120,000.î
What this means for current pensioners
The pension milestone seems a long way enough for many workers and professionals currently tackling the tumultuous economy, and the latest findings from the IFS will not placate this group of anxious people who could appear understandably covetous on the issue.
Whilst current pensioners have profited from the governmentís decision to raise pensions annually in line with inflation, and this failing to rise, by 2.5% regardless per year. Such perks are likely to be viewed apprehensively by workers currently experiencing stagnant wage growth, wondering whether they will be afforded similar rates in their old age.
Cormac OíDea, top economist at IFS and co-author of the report in question, spoke forebodingly on the matter, stating: ìThe large majority of couples reaching state pension age in recent years have more wealth than necessary to maintain their standards of living into retirement. This is a cohort that has, as it has turned out, ended up saving more than they needed for retirement. The picture for future generations, however, may look quite different.î
Though it is true that the present dayís pensioners enrolled onto more lucrative pension deals, which gave them assurance they would be provided with incomes worth 66% of their former salaries. Moreover, the financial ramifications of the soaring property prices have shone on their retiree incomes, there could be light at the end of present day professionalsí proverbial working tunnels.
The defined contribution pension scheme is being overhauled in April 2015, and as such future pensioners could
benefit from increases and modifications to small pension pots, jumping on profitable collective pension schemes and greater flexibility regarding access to income. Perhaps the most pertinent change is the eradication of any obligation for a saver to purchase an annuity, rather the focus is on the success of a saverís investments made during his/her working life.
As such, there is more room for error, but also greater capacity for financial reward if one invests wisely. This combined with the anticipated changes to the state pension in 2016 both mean current workersí future pension prospects cannot be accurately determined just yet.
However, workers currently outlaying hefty deposits on houses, paying substantial bills and coping with comparatively astronomical mortgage repayments cannot simply expect to match the pension performance of those born in the 1940s, who through no small amount of fortune are currently in fine, financial fettle; Whether this generation of saversí are fortuneís fools is yet to be ascertained.