ONS data reveals extent of pension wealth inequality

The top 10 per cent of the population in Great Britain held more private pension wealth than the rest of the population combined between April 2018 and March 2020, figures from the Office for National Statistics (ONS) have shown.

The top decile of savers held 64 per cent of the country’s private pension wealth, while the bottom half held less than 1 per cent.

Median pension wealth for the top 10 per cent was £637,500, falling to £7,800 in the fifth decile, £1,200 for the fourth and £0 for the bottom 30 per cent.

Median pension wealth for people aged 55 to 64 was £107,300, with around two-thirds of people in this cohort still paying into a pension.

Middle aged people (45-54 year olds) were the most likely to be paying into a pension, with 78 per cent of this cohort doing so.

April 2018 to March 2020 was shown to be the first period that more people were paying into a defined contribution pension (26 per cent) than a defined benefit pension (23 per cent).

More than half (57 per cent) of people were actively saving for a retirement during this period, up from 43 per cent before auto-enrolment was introduced in 2012.

Almost a third of people did not expect to have any pension provision beyond the state pension when they retired.

Having a low income or not working was the most common reason for not saving into a pension (54 per cent), with self-employed workers more likely to say they could not afford to contribute to a pension than employees.

“The UK is divided into pension ‘haves’ and ‘have nots’; the ‘have nots’ appear to outnumber the ‘haves’, and the gulf between them is so wide that the two groups have almost nothing in common when it comes to their experiences of retirement,” commented Interactive Investor head of pensions and savings, Becky O’Connor.

“The range is from £0 to a median amount of £637,500. This level of inequality is quite shocking and demonstrates the need for further reform of pension policy. We quite clearly cannot generalise about ‘wealthy retirees’ or ‘the pensioner population’ when experiences are so disparate.

“Although auto-enrolment has been successful, there are holes in it that certain groups such as low earners and self-employed people are falling through.

“There is an urgent need to address the shortfall in income to cover basic living standards in retirement for hundreds of thousands of people who stop work every year.”

Canada Life technical director, Andrew Tully, added: “These figures confirm we have passed ‘peak-DB’ with more people now saving through defined contribution schemes, and over the next 10 years it is likely the majority of people approaching retirement will only have defined contribution (DC) savings.

“That brings the sustainability of pension income into sharper focus as many recent retirees have had a based of defined income to underpin their DC savings. Some of these retirees with only DC savings may wish to use part of their pot to purchase an annuity later in life to give an element of guaranteed income on top of the state pension.

“The figures also confirm the huge inequality in pension saving. Self-employed saving are less likely to contribute to pensions and this gap is increasing over time. Giving self-employed greater incentives to save in a pension, or allowing them to access their funds in certain circumstances to help their business, may be worth considering.

“While automatic enrolment has been a huge success, we need to move forward with the proposed changes extending coverage to younger and lower paid individuals so they can benefit from an employer’s pension contribution.”

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