Baby boomer couples retiring with lots of moneyWhich? suggests how future retirees can prosper too

09 September 2014

Pensions IFS

Couples born in the 1940s have retired with more than enough money to fund their retirement over the last decade, according to a new report. 

The report, published by the Institute for Fiscal Studies (IFS), found that 80% of couples born in the 1940s have annual gross pension income worth at least two-thirds of their average annual working-life earnings.

However, people retiring in the future will not be so fortunate and will have to manage their expectations accordingly.

Here, we outline the changes that could help future pensioners get the most from their retirement income. 

Which? advice for future pensioners

The demise of final salary pensions, smaller state pensions and less mortgage wealth will combine to reduce the income of retirees, in comparison to the baby boomer generation - who have benefited from gold-plated final salary schemes, bought property under right-to-buy and received full state pension at an early age.

However, there are number of imminent rule changes that could help future generations prosper. 

Changes to defined contribution pensions

Options open to people with defined contribution (DC) pensions are set to change radically in April 2015. The Which? guide on the changing face of retirement will help you to make your choice in the new pensions world.

State pension changes

The way that the state pension is calculated will change in 2016 and you'll need to work out how much you'll be due. Our new guide on the 2016 state pension changes outlines the new arrangements and explains how the end of the second state pension will affect you. 

We've also highlighted a number of ways in which you can top up your income in retirement to give you more money to play with. 

A rosy picture for retirees

The main part of the IFS research compared wealth holdings and retirement income of couples to see how much of their working earnings they were able to 'replace' at the point of retirement. The key findings were as follows:

  • 80% of couples born in the 1940s have annual gross pension income at age 65 (from state and private pensions) that replaces at least two-thirds of their average annual working-life earnings (adjusted for price inflation).
  • Over 40% have gross pension income in excess of their average real working-life earnings.
  • If you also take account of the income that could be generated from other financial wealth holdings (ie ignoring housing), 90% of couples would have replacement rates greater than two-thirds, while nearly 60% would have greater income in retirement than average real earnings during working life.

Cormac O’Dea, one of the report's authors, said: 'The large majority of couples reaching state pension age in recent years have more wealth than necessary to maintain their standards of living into retirement. 

'This is a group that has, as it has turned out, ended up saving more than they needed for retirement. The picture for future generations, however, may look quite different.'

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