The average pensioner income is now higher than the average income of working age individuals, according to research from Resolution Foundation.
Speaking at the Pensions and Lifetime Savings Association's annual conference, Resolution Foundation executive chair, Rt Hon Lord David Willetts said: “The middle income pensioner, after housing costs and adjusting for household size, is, if anything, now likely to be more affluent than the average working age household.”
Furthermore, this gap widens further when looking at 20th percentile with the lowest income, as Willetts explained:
“The 20th percentile of a family of working age is managing on a significantly lower income than the 20th percentile of pensioner. This matters, because an awful lot of social policy, public policy, provision, what you pay for, what you don't pay for, works on the basis that age is a good proxy for poverty.
“It is actually no longer correct to assume if you're old you're poor. It is no longer a good guide to social policy.”
Willetts also highlighted the additional risk shouldered by young adults due to the switch from DB schemes to DC schemes:
“The younger generation are bearing far more risk in their pension provision in pure DC than many of the older generation who had, by contrast, the extraordinarily supportive and risk-bearing framework of company DB.”
He explained there is concern that young people will shoulder the risk of low investment returns which could deplete private pension incomes.
DC pension holders will take on the risk of higher inflation rates that DB pension holders are protected against. Additionally, the risk associated with longevity of the older generation and the cost of health and social care of that generation will also be borne by those with a DC scheme.
To negate this risk for the younger generation, Resolution Foundation believe that there should be a legislative framework for CDC schemes and a “default track to a guaranteed later life income”.
Furthermore, increasing saving will help the financial prospects for the younger generation. To action this, Resolution Foundation thinks that the government should flatten pensions tax reliefs and deploy auto-enrolment for low earners and the self-employed.
It also thinks that a £10,000 'citizen's inheritance' to be distributed to an individual at the age of 30 to be spent on “housing, pensions, education or entrepreneurship”.
Willetts added: “£10,000 doubles or more the asset position of two-thirds of people aged thirty. From the perspective of the younger generation, that is enough to change their prospects in getting onto the housing ladder and significantly changes the amount of money they have in their Nest auto-enrolment pension.”