The last 50 years has seen a dramatic increase in pensioner incomes and decline in pensioner poverty rates. But what are the prospects for the future?
This Round-Up, published by the Joseph Rowntree Foundation, draws together the key findings from a programme of work led by the Institute for Fiscal Studies which looked at the prospects for future pensioner living standards.
- The improvement in average pensioner living standards seen over the last few decades – both in absolute terms and relative to the rest of the population – is likely to continue into the start of the next decade. However, looking beyond that, the prospects for later cohorts are mixed.
- Recent reforms to the state pension system are likely to mean that fewer pensioners will be reliant on means-tested benefits to lift them out of income poverty. But for middle and higher income people the state pension will increasingly replace less of their earnings.
- Whether private resources will fill this gap is questionable, as in many dimensions later cohorts (those born in or after the 1960s) appear less well-placed financially than their predecessors did at the same age.
- With greater reliance now being placed on individuals’ private saving decisions, it will be important for the government to ensure that people have the right, accessible information, to help them plan appropriately for retirement. It will also be important to monitor the effect of recent policy changes – in particular, auto-enrolment and the new greater flexibility in how funds held in defined contribution pensions can be used.
- One dimension in which later cohorts appear to have access to much greater resources on average than their forbears is in the inheritances they expect to receive. However, even if these expected inheritances are realised they are not evenly distributed, meaning the retirement income of future cohorts may be more heavily dependent on their parents’ circumstances than is the case for current pensioners.
- Working lives are likely to continue getting longer – as a result of policy changes, improving health, and because of potentially more constrained financial resources. This development is positive in many ways but policy-makers will need to continue to be aware that not everyone will be equally able to work into older age and will need to ensure that appropriate policies are in place to support these people.