Transcript – Income of Retired Households (October 2012)
This is a transcript of the video podcast which can be viewed at
This is a short video looking at the latest on the income levels of retired households in the UK.
We will be looking at the period from 1977 to 2010/11 looking at the size and composition of retired household income as well as their financial position.
First we will look at the changes in disposable income over the period from 1977 to 2010/11 using this chart. Taking into account the effects of inflation we can see the average amount of disposable income for retired households, illustrated in blue, was £6,700 in 1977, whereas in 2010/11 this figure stood at £17,700.
There has also been an increase in real terms for the income of non-retired households, illustrated in red, whose average disposable income was £16,500 in 1977 and is now £35,000 in 2010/11.
As seen the rate of growth in the average disposable income of retired households is larger than that of non-retired households.
Moving this graph to one side, we will now use this new chart to track the average disposable income levels of retired and non-retired households with that of Gross Domestic Product (GDP) for the UK.
The green line illustrates GDP which has a base level of 100 in 1977. The pink line shows the trend for non-retired households and the blue shows the trend for retired households. As can be seen growth for retired household income fluctuates less than that of non-retired households.
The dotted line illustrates the 1990s recession, and as shown by the blue circle, the average income for the two groups was similar during the late 1970s and 1980s. However, after the 1990s recession, the average disposable income of non-retired households fell slightly in real terms, whereas, incomes for retired households continued to grow over the period, hence the increasing gap between the lines on the graph, highlighted by the blue rectangle.
Finally the red circle shows a dip in average disposable income for the two household types due to the onset of the current recession.
Now we will focus on the composition of retired household income using this graph. The blue area illustrates the average gross income of retired households over the period from 1977 to 2010/11. After taking account for inflation, the average income was £7,700 in 1977 and is now £20,100 in 2010/11.
Moving this chart to the left we will now analyse the different components that make up the average income of retired households and also, using the table on the right, look at the yearly increase of each component.
The first component, shown in purple, is the amount of private pensions, including annuities, in the average income of a retired household. More than half of the overall rise in retired households’ gross incomes can be explained by growth in private pensions and it equates to an increase of 5.5% per year, as shown in the table on the right.
Following this we have the contribution of the State Pension, which up until 2000, was the largest component of retired household income. The contribution of the State Pension has increased by 1.9% per year between 1977 and 2010/11.
Next we have cash benefits other than State Pension, illustrated by the blue area, which has seen an increase of 2.7% per year. The remaining two groups are investment income which has seen a 0.3% increase by year since 1977, and income from other non-government sources which includes employment which as seen an increase of 3.7% per year.
Turning our attention to the financial position of retired households we can see, using this doughnut chart, that in 1977 the majority of retired households are in the overall poorest fifth of households in the UK. Looking at the situation in 2010/11 we can see that retired households are more evenly spread across the income distribution.
Focusing on the bottom two quintiles of the income distribution we can see that in 1977 83% of retired households were in these quintiles compared to 58% in 2010/11.
Now using this graph we will we solely focus on retired households and look at the income distribution between them. As we can see, the bottom four quintiles of retired households have all increased throughout the period from 1977-2010/11 and all are of very similar levels of income.
However, the top quintile, illustrated by the green line, has an average income significantly higher than that of the next quintile. The gap between the top two quintiles has increased over time, as shown by the increasing size of the vertical black arrows, and this is mainly due to the increased contribution of private pensions to retired household income as shown on the earlier graph.
Finally we will look at retired households’ taxes and benefits in 1977 and compare them to 2010/11.
The green and blue boxes illustrate the direct and indirect taxes respectively for both periods and the red and purple boxes show the retired households’ original income and cash benefits respectively.
Focusing on the direct and indirect taxes and looking at their proportion in terms of overall income we can see that in fact the amount of overall income paid in taxes is the same in both periods and equates to 29%.