House of Commons - Social Security

Select Committee on Social Security Seventh Report

THE BACKGROUND: KEY FACTS AND FIGURES ON PENSIONER INCOME AND SAVINGS

7. All the figures show that pensioners have become more affluent in the last twenty years. But although the incomes of all pensioners have grown, the gap between the richest and poorest pensioners has also increased dramatically. Between 1979 and 1997, the incomes of pensioner couples in the top fifth of income distribution rose by 80%. During the same period, the incomes of pensioner couples in the bottom fifth of the pensioner income distribution increased by only 34%, much less than for society as a whole.[8] In the financial year 1997-98, the richest fifth of single[9] pensioners had incomes of £206 per week (£189 after housing costs).[10] But the poorest fifth of single pensioners had incomes of £68 (£53 after paying housing costs).[11]

8. Table 1 below shows pensioners' position in the overall net income distribution in 1995-96, compared to 1979. In 1979, 47% of pensioners were in the bottom fifth in the income distribution. By 1997, the proportion had dropped to 24%, whilst the proportion in the remaining four fifths had grown. Fewer pensioners now need to claim income-related benefits because they are poor. Whereas in 1979, some 57% of all pensioner households claimed an income-related benefit, by 1997-98, the proportion receiving means-tested help had dropped to 37%.[12]

9. In 1997-98 the average income of single pensioners across the range of income distribution was £132 per week and for couples £258. The National Pensioners Convention argued that this average is inflated by a relatively small number of pensioners on high incomes. They said that a more representative figure was median net income, which for single pensioners was £113 a week, and for couples, £203.[13] This point is confirmed by the DSS in its Pensioners' Incomes Series 1997-98. It says, "the small number of pensioner units with very large incomes can have a significant effect on the mean [average], while the median income is unaffected by incomes at either extreme."[14] Table 1 shows that the majority of pensioners, although better off, have not become well off; they are now most commonly to be found (32%) in the second fifth of the income distribution rather than the bottom fifth. In 1997-98, the median income of single pensioners in this second fifth of income distribution was £94, of which £68 remained after housing costs.[15] Mr Andrew Dilnot of the Institute for Fiscal Studies summed up the position as follows: "pensioners are relatively under-represented at the very bottom of the income distribution compared to the rest of the population...Then they are somewhat under-represented at the top. The bulk of pensioners are found in income terms, in the bottom half of the income distribution."[16]

10. The most common source of income for pensioners is the state retirement pension. It provides about a third of all pensioner income and is the largest single source of support.[17] It is received by 10.9 million single individuals (98% of all pensioners) at a cost of £37.7 billion.[18] From April 2000, it is worth £67.50 per week for a single pensioner and £107.90 for a couple. Around 86% of men and 49% of women are currently entitled to the full amount, based on a full contribution record.[19]

11. A source of income available to almost all pensioners comes from Winter Fuel Payments, introduced in 1997. During the first two winters of the scheme, eligible households (people over pensionable age receiving benefits) received £20. Poorest pensioners (in fact, people aged 60 or more) on Income Support received £50. In winter 1999-2000, payments were increased to £100 (£50 each where two eligible pensioners shared a household). Around 10 million pensioners in over 7.5 million households received payments. For winter 2000-01, the scheme has been extended to almost all people aged 60 or more and payments increased to £150. The need to be in receipt of a qualifying benefit has been removed. As a result, the numbers eligible are expected to increase by a further 1.5 million.[20]

12. In 1997-98, 77% of single pensioners and 92% of couples had other income apart from state benefits. The rise in pensioner incomes is largely the result of the rise in occupational pensions. A little under two-thirds of pensioner households (60%) now receive income from an occupational pension. The average amount received in 1997-98 was £92 per week. This was an increase of 86% in the average amount, in real terms, since 1979.[21] There has also been a rise in investment income, with around 68% of pensioner households now having some investment income, but the majority receiving relatively small amounts.[22] Half of pensioner households who had investment income in 1997-98 received less than £5 a week.[23] Earnings are also an element of some pensioner incomes, mainly among younger pensioners. The National Pensioners Convention pointed out that more than half the difference between incomes of recently retired pensioners and pensioners aged 75 and over was accounted for by the earnings of the recently retired.[24] Among single pensioners, 16% of recently retired single pensioners had earnings, compared to 8% of all single pensioners under 75, and just 1% of pensioners over 75.[25]

13. Means-tested benefits (Income Support, Housing Benefit and Council Tax benefit) are an important part of the incomes of many poorer pensioners. Pensioners are the largest single group on means-tested benefits in Britain. Just over a fifth (21%) of pensioner couples and nearly half (48%) of single pensioners are in receipt of an income-related benefit. The number of pensioners with no income other than their state pension and state benefits stands at around 1.3 million.[26] Two out of three pensioners who claim Income Support are single women.[27] In April 1999, the Government launched its Minimum Income Guarantee (MIG) giving an above inflation boost to the Income Support rates for pensioners. In April 2000, the weekly MIG rates for pensioners were £78.45 for a single pensioner aged 60-74, rising to £86.05 for those aged 80 or over, and £121.95 for a couple, rising to £131.05 for couples aged 80 or over.

14. In considering the incomes of pensioners, account must also be taken of various 'in-kind' benefits and services: everyone over 60 qualifies for free prescriptions and free sight tests; pensioners aged 75 and over are entitled to free television licences; pensioners receive travel concessions; pensioners on Income Support qualify for free NHS dental treatment, vouchers for glasses and contact lenses and fares to hospital. Local authorities also provide a range of care services. A recent study by the Audit Commission found that around 500,000 people in England and Wales received home care, of whom 420,000 were aged 65 or over. These services can be free or subsidised, although the Audit Commission found that 94% of councils did charge for home care services. Nearly two-thirds of councils exempted those on the lowest incomes from charges. Sixty-two per cent of councils take account of users' savings.[28]

15. Much more information exists about pensioners' income levels than about their savings levels. Yet when looking at which pensioners are poor, savings are a factor. Mr Andrew Dilnot told us, "It is particularly difficult to define pensioner poverty because, whereas with those of working age it is tempting simply to look at the flow of their income and spending, amongst older groups in the population you might think that they would have built up assets, houses for example, durable goods, so that the flow of income in particular would be a relatively poor measure for many of them."[29] Table 2 below sets out information on the proportion of pensioner households with savings, taken from the Family Resources Survey. However, there is some evidence to suggest that capital is under-reported in the survey, which has relatively low levels of response to questions on assets.

Table 2

Percentage of pensioner households

38%

11%

10%

11%

29%

Amount of savings

Up to £1,000

Between £1,000 and £3,000

Between £3,000 and £6,000

Between £6,000 and £12,000