As average earnings are apparently around £26,000 p.a. for the UK as a whole, 'rich' pensioners would have to have an income (before tax) of around £52,000 - £78,000 p.a. then. Yes, that puts things in perspective!
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"Rich" pensioners - give us your views
(101 Posts)Today a new report ("Retirement Sorted? The adequacy and optimality of wealth among the near-retired") has been released by the IFS saying "Most couples retiring over the last decade appear financially well prepared"
It says the vast majority of couples born in the 1940s have levels of wealth that are more than sufficient to maintain their standards of living into and through retirement. Do you agree?
I've added lots more details below but would love your views asap on the above and also about "generational politics" - whether young people have been harder hit by austerity compared to pensioners and whether later generations will find themselves worse off than those currently entering retirement.
Very grateful for your thoughts!
(The rest of the detail...feel free to read or simply comment on the parags above - oh and "we" is the people who put together the report not GNHQ!)
The research takes two approaches to assessing financial preparedness for retirement. The first approach is to compare the wealth holdings and estimated retirement income of couples with their average earnings between ages 20 and 50. 'Replacement rate' approaches of this type have been used widely before in the UK, including by the Department for Work and Pensions, to assess the adequacy of retirement wealth. The second approach uses an economic model of behaviour over the life cycle to estimate, for each household, how much wealth they would have needed to accumulate in order to expect to maintain a stable standard of living throughout their lives.
Using the first, straightforward approach, we estimate that:
- 80% of couples born in the 1940s have annual gross pension income at age 65 (from state and private pensions) that replaces at least two-thirds of their average annual working-life earnings (adjusted for price inflation). Over 40% have gross pension income in excess of their average real working-life earnings.
- If you also take account of the income that could be generated from other financial wealth holdings (i.e. ignoring housing), 90% of couples would have replacement rates greater than two-thirds, while nearly 60% would have greater income in retirement than average real earnings during working life.
- Taking account of housing wealth as well raises the proportion able to replace more than two-thirds of their working-age earnings in retirement to 98%. We estimate that 84% could replace more than 100% of their average real gross earnings during working life on this basis.
Comparing the level of gross retirement income with working-life earnings is a simple way of assessing the adequacy of households' retirement resources. However, the results are very sensitive to the threshold used to define adequacy (and to the way in which previous incomes are adjusted for price increases).
The threshold used is typically less than 100% replacement to reflect at least three important reasons why one might need a lower pre-tax income in retirement than during working life in order to secure a similar standard of living. First, tax rates are lower as those over pension age pay no National Insurance contributions. Second, costs associated with dependent children are likely to be lower in retirement. And third, there is no longer the need to save to provide a retirement income. However, exactly how much less than 100% replacement is counted as adequate has been arbitrarily chosen in UK analyses to date.
Therefore we have used a novel alternative approach to assess the adequacy of retirement resources which employs an economic model to quantitatively take account of these factors. The model also takes into account that households would have access to means-tested pension credit in retirement if they have low incomes. We find that:
- 92% 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 - 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.
- The surpluses are larger for those with higher average lifetime earnings than for those with lower lifetime earnings, and for those who live in London than for those who live elsewhere in England.
- Even 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.
These results confirm the overall finding of the first approach that the majority of this cohort has saved 'enough' for their retirement. But the model also throws light on the value of the 'simple' replacement rate method. It suggests that the replacement rates of gross income that households need in retirement in order to expect to maintain a constant standard of living vary considerably between households. One-quarter are estimated to need a replacement rate of less than 40%, while one-quarter are estimated to need a replacement rate of more than 70%.
This suggests that considerable caution should be exercised when using simple replacement rate thresholds to assess the adequacy of households' retirement resources and the impact of government policies on the preparedness of households for retirement.
Cormac O'Dea, a Senior Research Economist at the IFS and one of the authors of the report, said: "The 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."
As I understand it something like 30% of pensioners are eligible for pension credit which rather cuts down on the numbers who are likely to be rich.
After that I don't think you can go by the numbers who pay 40% tax (although the government may). The more you earn the more worthwhile and possible it is to find ways to avoid paying tax. Basically, my opinion would be that if you earn and own the same as a working person I consider to be rich but you are a pensioner I would still consider you to be rich.
Having said that I don't really think the word "rich" is actually very helpful. It might be better to look at twice or three times average earnings and call it twice or three times average earnings. It is less emotive and more exact than "rich".
Thinking about it we only got on the 'property ladder' because the good old GLC offered 100% mortgages to essential workers. As teachers we were eligible (we had to promise to continue to work for the ILEA for a set time) to buy a home within a certain price range that a High St bank would not lend on. If we had not done that we would still have had our pensions but not our 'savings' ie our London house as I suspect we would have moved out of London.
Whereas probably the majority are somewhere in the middle, not in the 40% tax bracket and not struggling.
DB and SIL used to see their neighbours getting lots of benefits and going off on lovely holidays abroad, buying a caravan etc, whereas their own pensions were just above the level where they could receive any help at all. They managed, just.
I assume that the term 'rich pensioners' means just that. Pensioners who are rich (say in the 40 percent tax bracket). It doesn't mean poor pensioners of whom doubtless there are many.
When I was a volunteer with Age Concern, I was seeing every week older people from both ends of that age spectrum who were anything but rich. Their poverty was rarely caused by their reckless expenditure of money in their younger years on wine, women and song. It was much more low wages and poverty that made saving impossible or the problems and disasters of life that can so quickly bring down the seemingly strongest family.
I also think that most of those so envious of 'rich' pensioners probably have incomes considerably in excess of the average 'rich' pensioner.
All good posts on this thread by you FlicketyB as usual. I do think that some people in the media and also in politics now and then [and think tanks] are senior bashing [perhaps we make easy targets].I can only speak for myself and others that I know; we are 'doing alright' but are certainly not wealthy.Perhaps our expectations of life dictate that we are happy with the 'smaller things'. We do not think that endless shopping and spending are the way to happiness.We make do more, and we don't waste things.I know many younger people who do waste money, constantly updating their things, take away meals, nails, magazines etc.
Averages are meaningless, average house prices show this fact.We have worked hard, been careful with money and help our DC and our DGC with both money and time. There are people of pension age who have no private pensions, people who manage [just about] others who are comfortably off and some who are wealthy, just like people who are younger and employed.
Charleygirl
I'm in the same position. Not funny is it?
Gracesgran apologies, MiceElf thank you for your confidence, but thinking on your feet is very different from thinking and writing
Penstemmon 
I now live on my own and I have had to adapt my house at my expense to make life easier for me following an accident and failed surgery.
We (dob late 40s/early 50s) only 'saved' anything because of our public sector (teacher) pension scheme. I paid AVCs for several years to make up for four years at home with kids. Any other saving was really minimal.
We were lucky to own (well almost) a house in London when we retired and we were able to buy our current home outright when we re-located to a less expensive area. It has been serendipity rather than financial planning that finds us 'comfortable' in semi-retirement.
That is a very good idea MiceElf.
Next time the media want a speaker from GN on economics, perhaps it sound be a good idea to co-opt Flickety ASAP.
Gracesnan I was not suggesting that anyone has any right to tell older people how to live
That's fine FlicketyB, I don't think I made any reference to you personally or any comment you made. In fact, my comments we just an overall and, as I said, personal view.
It may have been a quick scan on your part that meant you misread my name too.
flick you echoed my thoughts exactly
I have finally got round to slowly and carefully reading the original post and understanding most of what it is saying.
It is stating the bl**ding obvious. That over the normal life cycle we have many demands on our finances in the early house and family formation years, that much of our surplus income goes into saving for old age through pensions or savings and then , surprise, surprise in old age we draw on our thrift and deferred savings to maintain our standard of living. Isn't that what people have always done?
It is also misleading to only look at couples. Those born in the 1940s are the first generation where more and more people are going single into old age as the result of divorce and relationship breakdown and no report like this is complete if the position of single people is not also taken into account. It seems also to only talk of lifestyle in terms of those who are fit, healthy and living in the same way as they did when working. It does not consider the potential costs of old age in domiciliary and residential care and whether the income and savings of these couples will cover such costs, especially if both need to go into care.
It also fails to take into account the extent to which retired people are using their resources to subsidise younger generations through childcare, housing subsidies and other assistance. Many older people are reducing their own living standards to help younger generations.
Gracesnan I was not suggesting that anyone has any right to tell older people how to live, just the opposite. I was querying why it was only older people who were being told to down size when many younger people are also, in Angus Hanton's terms, in properties that exceed their needs yet he is not suggesting that they downsize.
By the way am I alone in thinking that using the terms 'Grannies and Grandpa's' to refer to older people is patronising and demeaning, even when it comes from a member of that generation.
It would be an excellent idea if a non-working spouse could transfer their personal allowance to their partner if they do not work. That would make the options more flexible.
I do not know what they would choose to do.
If your daughter and her partner paid sufficiently less tax so that they could make more choices about working fewer hours and be able to provide more of the childcare themselves do you think they would do so rosequartz (I know you would miss being with you DGD) or do you think they would prefer to work?
Thanks for posting the link djen.
I have been out all day babysitting so that one of the younger generation could go to work (and I hasten to add she is not a bit like these intergenerational people).
It was very selfish of me to do that I know, as DGD is so lovely it was a pleasure!
I do realise that it is my problem rather than yours durhamjen but I am not very good at being told what to do and then told what I will think as When you've read the thread I expect you will agree with me. I felt as if I was having a conversation with rosequartz so it was easy to ask for the link but thank you for posting it ; I did find the thread really interesting.
My personal opinion on reading was that it was a very good and interesting webchat. Some questions were extremely pertinent, some were very emotive. Obviously Angus Hanton had a particular point he wished to put across but he did not appear to be trying to drive Grannies and Grandpas from their homes but more he seemed to want to encourage older people to do so where it makes sense and to offer help and fiscal advantage as incentives.
https://www.google.com/url?q=http://www.gransnet.com/forums/webchats/a1205945-Intergenerational-Foundation-webchat-with-Co-founder-Angus-Hanton-on-9-April&sa=U&ei=PSUQVJPqGtDiaoOkgZgK&ved=0CAgQFjAB&client=internal-uds-cse&usg=AFQjCNGlAHhmfsdZW_GjnzxGtfrCxPElNw
This is the one I mentioned, too, Gracesgran.
Just click on the link.
Is it still possible to see it *rosequartz"? If so is there a link or could you give me idiot proof directions. I am still finding my way around
flickety your last post is spot on.
gracesgran not sure if you saw the webchat with Angus Hanton from the Intergenerational Foundation earlier in the year.
This organisation is obsessed with forcing 'encouraging' home owners to downsize as well, to make way for families.
The government seems to take great note of what they report, and this man takes what people say and turns it back on them.
I think they are an insidious and dangerous organisation causing resentment rather than fairness.
At least one of their members have been shown to have parents with a huge house - obviously can't get mum and dad to downsize and give them some 'inheritance' before they pass on, so they will try to make it government policy.
Why should mum and dad cling on to the rewards of their lifetime of toil - that is so selfish apparently!
They would not think it is for the reasons posted above ( nursing care, to leave their children somethingafter they hsve gone, or just to enjoy themselves a bit after a life of hard work).
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