The first in an occasional series that shows how the most numerous older generation in history may be lauding it over the younger generations like never before.
As Jane Austen might have said, ‘it is a truth universally acknowledged that a man in possession of a fortune, is a man who has passed the age of retirement.’ Accept of course, only the first part of that statement was uttered by Austin, and it is most certainly not universally acknowledged. There is some truth in it, though.
It turns out that the average disposable income for retired households is £1,700 higher than in 2007. For working households, however, it is £400 a year less.
When you consider how record low interest rates are supposed to have pummelled pensions, the truth of this finding, recently revealed by the Office of National Statistics is all the more surprising.
In fact, median income for the retired household was £21,500 during the year 2015/16. That’s just a preliminary estimate, by the way.
Median income for non-retired-households was £29,200.
So at first glance, working households are still better off than the retired, the gap is merely closing.
According to the ONS: “A number of factors have driven the consistent growth in the incomes of retired households since 2007/08. One is a rise in the number of households reporting receipts from private pensions or annuities. Another is an increase in average income from the state pension, due in part to the impact of the ‘triple lock'.”
Turning to working households, the ONS said: “The fall in average disposable income for non-retired households after the economic downturn largely reflected a fall in income from employment (including self-employment). Similarly, it is earnings growth at the household level, in part due to rising employment levels, which has been the main driver of the most recent increases in average income for non-retired households.”
But disposable income is merely a reflection of income after inflation, taxes and taking into account tax credits.
For retired households, we have seen the triple lock, that has helped. On the other hand personal allowances for retired and working households are now at the same level, except for those born before 1938 – they have a moderately higher personal income tax allowance.
It is perhaps of no surprise, as McKinsey recently found, that a growing number of families expect their children to be worse off than their parents in 20 or 30 years’ time.
But there is a wider point.
Disposable income takes no account of student loan repayments, factor this in, then the gap between retired and working households surely closes even further.
Then there is the issue of generation rent versus generation home owner.
Working households may still have a higher level of disposable income than retired, but their net discretionary disposable income – that’s after taking into account things that they have no control of in the short term, such as rent/mortgage, council tax, utility bills, cost of commuting, and student loan repayments, is probably much lower.
As for net wealth, it is probably not even close. Low interest rates may have hit the value of pension funds, that may have hurt people who have retired recently, or are about to, but did not have the luxury of a final salary pension, but low rates have supported massive house price inflation and that has, on average, been a fantastic boom for the baby boomer generation, but a curse for their kids and grandkids.