Official figures show widening gap between low income workers and pensioners in 2020/21 – Steve Webb, LCP

The Government’s annual ‘Households Below Average Income’ (HBAI) figures, published today (31st March) show that the relative position of pensioners has continued to improve whilst that of the working age population stalled in 2020/21. This is likely to provide further fuel for the debate about the relative generosity of the pensions and benefits system to different generations according to LCP partner Steve Webb.

A commonly used measure of relative poverty is the proportion of people with a household income below 60% of the average (median) household income in that year. The table shows the results for working age adults and for pensioners for the previous year’s figures and the latest year’s figures.

Table. Percentage of adults on relatively low income (below 60% of median) in 2019/20 and 2020/21

Source: HBAI Summary Results: Tables 1.5a and 1.6a

Whilst the fall in pensioner poverty will be welcomed, there was no reduction in poverty amongst the working age population. As a result, the gap in poverty rates between pensioners and those of working age grew substantially. This may in part reflect the extent to which pensioners were shielded from the impact of the Pandemic whereas millions of workers were placed on furlough or equivalent schemes for the self-employed and suffered a drop in their income. Some of this may have since been reversed.

DWP has also published its annual ‘Pensioner Income Series’ data which provides figures for total pensioner income broken down by source of income, type of pensioner etc. The figures show that the average income of pensioner households rose by 4.3% between 2019/20 and 2020/21, rising from £556 per week to £580 per week. For couple pensioners the average in 2020/21 was £784, whilst for single pensioners it was £385.

One striking figure is the growth in the contribution from occupational pensions. This is shown in the table:

Source: DWP Pensioners Income Series 2020/21, Table 2.1

As the table shows, whilst overall pensioner incomes rose by 4.3%, occupational pension incomes rose by 11.8%. Most of this will have come from Defined Benefit pension schemes. However, recent research by LCP (‘the Ski Slope of Doom’) has suggested that we are now approaching ‘peak DB’, with those retiring around now enjoying the biggest occupational pensions of any generation before or yet to come. As the effect of DB scheme closures works its way through the system, this source of income is likely to peak shortly and fall back sharply, and income from new DC saving is unlikely to contribute nearly as much to household incomes for many years to come.

Commenting on the two sets of figures, Steve Webb, partner at LCP, said: “These figures suggest that in the first year of Lockdown, pensioners were largely insulated from the economic effects of the pandemic. As a result, the gap between pensioners and the working age population deepened in terms of relative poverty rates. If this gap were to persist as we emerge from the pandemic, this is likely to add further fuel to the debate about the relative fairness of the system to low income workers and pensioners.

New figures also show that company pensions made a major contribution to the income rise enjoyed by pensioners. Whilst this is great new for those who have benefited from them, generous company pensions will increasingly be a thing of the past for those working in the private sector. These figures are a reminder of how big a gap will have to be filled by Defined Contribution pensions, and as things stand there is little sign that DC pension pots are anywhere near big enough to meet this need”.

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Note to editors: The LCP report, ‘the Ski Slope of Doom’ on the decline in occupational pension incomes can be found here.