The growth in pensioners’ incomes is currently outpacing that of those in work. But there are clouds on the horizon…
Some good news for those deemed to be in a “pensioner household”: you are faring rather better than those still doing the 9 to 5.
Last year the median disposable income of those in retirement increased by £300 (1.4%) after benefits, taxes and inflation were taken into account. And while that doesn’t sound huge, “non-retired” households experienced a paltry 0.6% rise.
To put this into a longer-term context, in the ten years up to 2018, the median disposable income of “retired households” has increased by £3,200 (16%), while the disposable incomes of those actually in work went up by £900 (2.9%).
Part of the reason that pensioners have been able to keep pace with – or better – than inflation is that, while employers have been squeezing wages, the State Pension has outperformed the “employed sector” – thanks to the Triple Lock.
At a time of historically low inflation, the guarantee that the State Pension will be at least 2.5% has meant that millions of people have seen their real incomes rise.
But – and it is a very big but – it’s worth remembering that even the New State Pension is only around £165 a week – and millions of those who retired ahead of its introduction are receiving far less than that.
An extra 2.5% of not very much is still not very much.
It’s also worth remembering that the Triple Lock was introduced in order to rebalance pensions which, since the early days of the first Thatcher government – had been uncoupled from average earnings. For several decades, while those in work saw their real incomes rise year on year, pensioners were locked into rises equating only to the rate of inflation, which was often far lower than earnings.
And now for the bad news…
However, just how long this situation will continue is now seriously in doubt.
While there were rumblings ahead of the last two elections that the Triple Lock may be up for negotiation, that policy was ditched as a vote loser. But now one of the more influential cross-party parliamentary committees of MPs is proposing that rises in the State Pension in their present form are unsustainable.
The Treasury Committee has recommended replacing it with an annual “earnings-uprating”.
For those trying hard to tuck away money ahead of retirement, there is some more worrying news: it is also proposing a fundamental reform” of pensions tax relief, introducing a flat rate of tax relief.
On top of that, the Treasury Committee has recommended lowering the lifetime allowance – the total amount you can save into your pension pot.
Also under threat are Lifetime Isa’s, which the committee describes as complex and inconsistent compared to other parts of the ‘savings landscape’.
While any changes to the State Pension are likely to come after the next General Election and will be the subject of heated debate as well as quite possibly some political posturing, the other changes could easily be made in a future Budget.
Government business apart from Brexit has been shoved to the back of the queue for some time now, but tax relief, lifetime allowances and Lifetime ISAs may well be on the agenda sooner rather than later…
Everyone’s circumstances will be different, but the new findings should make all of us (at the very least) relook at our assumptions on how we fund our retirement years.
Using the RetireEasy LifePlan gives you a head start here, because (with the Classic and Premium versions) you can play out as many different scenarios as you think of, each showing the impact on your finances depending on how many years you expect to live, how much you will need to put aside to fund your care and so on.
That may help you determine whether you should cut back your spending, save more, stay in work for longer than you had planned…or if you could even spend out a little more.
Having oversight and control of your finances will make a big difference to making the very most of your retirement year
