How are private pensions affecting the income of retired households?

For the 79% of retired households¹ with private pensions income in the financial year ending (FYE) 2016, their disposable income² on average was 1.6 times higher than those without private pensions income, ONS analysis shows.

With a growing number of retired households increasingly relying on income from private pensions to provide for them in retirement, the gap between the incomes of those who have private pensions and those who don’t is increasing and inequality of income among retired households has shown small increases in recent years.

Against this background, the income of the average retired household has been growing at a faster rate over the last 40 years than the average non-retired household, though in FYE 2016 it still remains below the average income of a non-retired household.

Over the last 40 years, the percentage of retired households whose income includes private pension income has been increasing.

Percentage of retired households with private pensions, 1977 to FYE 2016

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As the chart below shows, this means that private pension income is now making up a larger proportion of the gross income ³ of the average retired household than it has in the past.

Average annual gross income, 1977 to FYE 2016

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Note:

1. The data are adjusted for inflation (expressed in FYE 2016 prices) and to account for households of different sizes

Although state pension income has almost doubled over this period, over half of the increase in the gross income of an average retired household is due to an increase in private pensions income which is around seven times as high in 2015/16 as it was in 1977.

The gap between the average original income⁴ of those who have private pensions income and those who don’t has been increasing.

Average weekly original income, 1977 to FYE 2016

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Note:

1. The data are adjusted for inflation (expressed in FYE 2016 prices) and to account for households of different sizes

The ability of cash benefits (including the state pension) and taxation to narrow this gap has decreased and the gap between those who have private pensions income and those who don’t has been increasing in the last few years.

Average weekly disposable income, 1977 to FYE 2016

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Note: 

1. The data are adjusted for inflation (expressed in FYE 2016 prices) and to account for households of different sizes

This can be seen when looking at inequality among retired households which has been increasing slightly in recent years.

Although they are small relative to larger increases seen in the 1980s, since 2009/10, there has been an upward trend in inequality⁵ among retired households of both gross income (after taking into account the state pension and other cash benefits) and disposable income (after taking into account taxes and benefits).

Inequality of gross and disposable income, 1977 to 2015

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Nevertheless, incomes of retired households have grown strongly over the last 40 years.

Disposable income for retired and all households, 1977 to 2015

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Note:

1. The data are adjusted for inflation (expressed in FYE 2016 prices) and to account for households of different sizes

In 1977 only around a fifth of retired households had a disposable income of over £10,000 a year, but by 1986 this had increased to half. In 2015/16, more than 95% of retired households had disposable income above £10,000.

For a more detailed look at what has been happening to the incomes of retired households over the last 40 years, please see our article.

Footnotes:

1. A retired household is one where the combined income of retired members accounts for the majority of the total gross household income (before taxes are deducted). A retired person is anyone who describes themselves as “retired” or anyone over minimum National Insurance pension age describing themselves as “unoccupied” or “sick or injured but not intending to seek work”
2. Disposable income is the amount of money that households have available for spending and saving after direct taxes (such as Income Tax and Council Tax) have been taken into account.
3. Gross income is the income of a household after all sources (including private pensions, investment income and cash benefits, including the state pension) have been taken into account but before taxes are deducted
4. Original income is the income before cash benefits (including the state pension) and direct taxes are taken into account.  It includes income from employment, private pensions and investments.
5. Measured by the Gini coefficient; a measure of inequality, which varies between 0 and 100. The lower the value, the more equally household income is distributed.