Published On: Wed, Jul 10th, 2019

Pension: Gap between richest & poorest pensioners widens – weekly difference rises to £721 | Personal Finance | Finance

According to an analysis of government figures by pension and investment firm Aegon, 840,000 retired couples in the UK have a weekly income which would cost more than £1.15 million if it was bought as an annuity. The company said that the richest 20 per cent of pensioners – equivalent to 840,000 couples – now have an average net income of £988 per week. This amount (which is after income tax, National Insurance, and council tax) works out at an annual income of £51,376. The government figures, from the “Pensioners’ incomes series: financial year 2017 to 2018” report, include sources of pensioners’ income such as pensions, investments, earnings, and benefit income.

The analysis highlighted how the top 20 per cent of pensioners have seen their income increase by 15 per cent over the last 10 years from £858 to £988.

Meanwhile, the poorest have seen a 14 per cent increase from £234 to £267 in the same period.

In this time frame, the difference between the top and bottom 20 per cent of pensioner couples has risen by nearly £100 from £624 to £721 per week.

Steven Cameron, Pensions Director at Aegon, said: “Over the last ten years, pensioner couples in the highest income distribution band have seen their average weekly income increase by 15 per cent to £988.

“A weekly income of this size would cost £1,152,250 to buy through an annuity which means this large proportion of retired couples can legitimately consider themselves ‘pensioner millionaires’.

“In fact while many people may assume their house is their most valuable asset, for many it could actually be their pension.

“However, whilst the top fifth of pensioner couples have seen their income rise to £988 per week, the figures show the bottom fifth have an average weekly income over £700 less at just £267 per week per couple, or £134 per individual, which is substantially under the full rate of the new state pension, currently £168.60 per week.

“Many of these pensioners may have reached state pension age before 5 April 2016 and be receiving the ‘old’ state pension or have had insufficient National Insurance records to qualify for the full rate.”

According to an analysis from AJ Bell has suggested that for a person to retire at 65, with a life expectancy of living to 100, they would need a pension fund of £447,000.

That’s if the pensioner wants to be able to withdraw £20,000 per year from it.

Tom Selby, senior analyst at AJ Bell said: “If someone wants to retire today on a UK average salary of £28,000, if we assume they will get around £8,770 from their state pension, they will need to be aiming to generate just under £20,000 from their private pension pot.

“A 65 year old would need a pension fund of £447,000 to be able to withdraw £20,000 a year, inflation linked at two percent a year and still see their pension last until age 100.

“However, if they delay retirement five years to age 70 the size of pension fund needed to reach age 100 would reduce to £407,000.”

Mr Selby explained the amount that would required to be saved in order to amass this money for different age groups.

“To save the £447,000 required for an average salary in retirement from age 65 to 100, a 25-year-old would need to save £235 a month,” he said.

For those with a starting age of 35, the senior analyst said that the monthly personal contribution would be required to be £428.

Fast forward 10 years, and a starting age of 45 would require a saver to set aside £859 per month for the aforementioned fund value at the age of 65.

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