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WEALTH MANAGEMENT

Pensioners and their post-retirement income

Pensioners and their post-retirement income

Jon Geer shares a survey insight

May 9, 2017: Analysis of inter-generational inequality from the IFS ahead of the election will fuel the fiery debate raging around the state pension triple lock. The IFS has revealed that pensioners have seen their average income grow nearly 15 percent since 2007/08; thanks to the triple lock. Meanwhile, young adults have only just started to recover median income levels last seen before the recession.

This is a reminder that a debate about the state pension is a question of who pays and how much. The more generous the terms, the more money shifts from the working age population to older citizens, since we operate a ‘pay as you go’ system. Instead of saving for one’s own state pension, one pays for parents and hopes that children will pay  in turn.

This means the system is built around the principles of the social contract. It requires a show of faith from all parties that they will get a fair deal over their lifetime. However, despite this emphasis on inter-generational dependence in the state pension system, recent research conducted by Old Mutual Wealth shows almost two thirds (59% of those aged 30-45*) are concerned that they won’t be able to afford a decent standard of living in retirement, illustrating a lack of confidence that the social equation will deliver them a fair deal.

The triple lock has been set up as one of the key battlegrounds of this election. A recent snap poll conducted by the organization shows that a third of over 55s could be influenced by state pension policy when casting their vote at the forthcoming general election. The state pension is a political hot potato that cannot be ignored. However, it will not be easy to balance a sustainable policy solution against the interests of older voters.

Replacing the triple lock with an earnings link would make sure growth in pensions continues, but without the ratchet effect. In times when earnings fall behind price inflation, an above earnings increase could kick in until real earnings growth resumes.

If the triple lock was replaced by an earnings link then the spending on state pension would be 5.9% of GDP by 2066/67 instead of 7.1% as is currently projected, according to projections from John Cridland.

* The facts are on the basis of a survey conducted by YouGov on behalf of Old Mutual Wealth. The survey was conducted on over 3,000 people between 30 and 45 years old.

Jon Greer is Head of Retirement Policy at Old Mutual Wealth 


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