PLSA AC 18: Retirement incomes likely to decline until 2060

Average pensioner incomes are likely to fall over the next “few” decades, according to the Pensions Policy Institute (PPI).

This is due to retirees having lower levels of defined benefit entitlement and “because people are no longer able to accrue entitlement to the additional state pension”.

Speaking at the PLSA annual conference, PPI head of policy and research, Daniela Silcock commented that retirement incomes should recover to today's level by 2060.

“It is expected, because of automatic enrolment, that people will be accruing much more in DC pensions over the next few decades, so we are likely to see incomes start to rise again on average for pensioners. DWP projections estimate that incomes in terms of earnings terms will meet current levels by around 2060.”

However, this could depend on whether the triple lock inflationary measure for state pensions remains in place.

Silcock commented: “If the triple lock is removed it may take longer for pensioner income to come back to current levels.”

Looking ahead to 2025, the PPI estimated that there will be 20.6 million active savers, with around 69 per cent saving into DC schemes and around 31 per cent saving into DB schemes.

These 20.6 million savers account for 48 per cent of working age people in 2025, up from 35 per cent in 2012/2014.

The PPI also made predictions of how much income pensioners will have in 2025, as Silcock explained: “The median DC pot at state pension age in 2025 is likely to be somewhere below £50,000, so people might be able to get around £3,000 per year from a pot of that size if they got an annuity.

“The average DB income in 2025 will be around £4,200 and the average state pension income will be around £7,800

“You might say but that lower than the new state pension level, but this is an average and some people this is based on will not have full entitlement yet to the new state pension because we are only looking about 7-10 years ahead.”

Despite the expected decline in retirement income, the PPI predicted that the median DC pension pot at state pension age could grow from around £27,000 today to around £48,000 over the next ten years, due to auto-enrolment.

Silcock concluded: “It looks like we really are going to be seeing a rise in the level of income people receive from DC.”

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