How wealthy are the UK's pensioners?

A campaign to increase the number of people claiming pension credit is being launched by the government after announcing that winter fuel payments will be restricted to those “most in need”.

About 10 million pensioners are expected to lose out on winter fuel payments as a result of the policy, which is part of the government's plan to tackle a £22bn “black hole” in public finances.

Figures from the Department for Work and Pensions (DWP) show around 880,000 eligible pensioners are currently not claiming pension credit, which on average amounts to £3,900 a year, and opens access to winter fuel payments and other benefits.

While pensioners, on the whole, are generally better off than their predecessors, recent figures show pensioner poverty rates have been on the rise for the past decade, with a growing number relying on food banks for support.

Here, Yahoo News takes a look at how wealthy the UK's pensioners really are.

Pensioners better off, but trend starting to turn

Pensioner incomes increased much faster than incomes of working-age people from the early 2000s until 2011, according to a report by the Institute for Fiscal Studies (IFS).

They grew by 22%, while average working-age incomes fell by 3%, leading to a "remarkable situation" where, on average, the incomes of pensioners reached around the same level as average incomes for working-age people.

This might explain the widely held perception of pensioners being so much better off, and in relative terms, they still are, but Heidi Karjalainen, a senior research economist for the IFS says "that trend is definitely starting to turn".

"Growth rates for working age incomes and pensioner incomes have been very similar in the last decade or so," she told Yahoo News. "The level is quite similar, and historically speaking that is quite an unusual thing. It’s sort of a pattern that we don’t think can continue forever."

Figures from the Department for Work and Pensions (up to the end of 2022/23) show that pensioners' income increased steadily since 1995 but took a dip in 2021 and has since been stagnating.

In the financial year ending 2023, the average income for pensioner couples was £561 per week, £267 for single pensioners and £387 for all pensioners.

What will happen next remains unclear, but Karjalainen cautioned that "policymakers can’t get complacent” just because pensioners are doing relatively well right now, and must plan for the living standards of future retirees.

The IFS, which is currently working on a review of the pensions system, has identified a number of key issues imperilling future pensioners, including an increasing prevalence of private renting.

"There hasn't been much of a change in the last decade in the home ownership rate of a young adults," said Karjalainen. She explained that this, along with a decrease in social housing, could lead to more "income inadequacy".

The prevalence of defined contribution pensions over defined benefit pensions is putting creating "a lot less certainty and a lot more risk" over the returns pensioners will receive, Karjalainen added, while for many, the default rates of automatic enrolment schemes might not be high enough.

Pensioner poverty on the rise

Incomes of both pensioners and those of working age grew by 12–13% between 2011 and 2022, according to a report by the IFS, but over the same period, incomes at the 10th percentile of pensioner incomes grew by just 5%.

This, the institute said, means the gap between poorer pensioners and those on average incomes has grown. Meanwhile relative pensioner poverty increased from 13% to 16% between 2011 and 2022 – pushing another 300,000 pensioners into poverty.

Lower-income pensioners have fallen behind partly because they have neither benefited from increases in private pension incomes nor growth in employment incomes.

This has benefited middle-income pensioners and working age people, and increases in the state pension hasn't been enough to bridge this widening gap.

The IFS added that average pensioner benefits other than state pensions fell by 15% from 2011 to 2022 mostly due to rising state and private pension incomes reducing their entitlements.

Will the new state pension help?

The new state pension, introduced on 6 April 2016, applies to men born on or after 6 April 1951 and women born at least two years later, once they reach state pension age (currently 66).

The full rate of new state pension is £221.20 a week for most people, provided they have earned their 35 years of entitlement, which in some ways could potentially level the playing field among pensioners.

“You could have been in work or taking care of young children, or even being out of work. If you're receiving universal credit for example, you're still building up that entitlement," said Karjalainen, who explained these changes have seen increases in payments for women in particular.

Meanwhile, people can no longer build up an earnings-based pension under the new state system, although they can of course still contribute to a private pension.

This, Karjalainen said, will result in a more noticeable benefit for lower-income pensioners, relative to what they were earning before, but middle and higher earners will have to save more to maintain the same living standards.

How sustainable is the pensions system?

“Spending on the state pension is going to become a bigger and bigger proportion of GDP, and of course that money has to come from somewhere," said Karjalainen, pointing to OBR projections from last year.

She said the proportion of people over 65 in the UK was "pretty stable" until around 2010, at which point a large influx of baby boomers reached state retirement age.

While the government is spending more on the NHS and, to a lesser extent, social care, it may have to make some decisions on how it manages pensions in the not too distant future, Karjalainen said.

Tax cuts, cuts to services, taking on more government debt or "reducing the generosity of the state pension" are all options, as is increasing the state pension age, although the IFS says this has a significant impact on poverty rates.

Karjalainen said another option could be to find an alternative to the current "triple lock", which automatically increases the state pension every April by the maximum of three measures – the rate of inflation, average wage growth or by 2.5%.

Pensioners food bank use more than quadruples in five years

Pensioners still have the lowest poverty rate compared to other age groups," says director of policy for the Trussell Trust foodbank network, Helen Barnard.

"That's because we had an incredible policy success story over last few decades, which saw pensioner poverty coming down from about three in 10 to 1998 to 13%, just above one in 10, in 2012.

"What's happened since then, in the last few years particularly, is that has started going into reverse. We've started to see that feed through into foodbank need.

"Overall, only 6% of the support that our food banks provide goes to pension-age households, so they still have the lowest need among all age groups... but it's started to go up quite quickly."

End-of-year statistics for the Trussell Trust shows the amount of support the network needed to provide pensioner-age households had grown by more than 345% between 2018/19 to 2023/24.

"Obviously that is starting from a low base, but it's a faster rise than we've seen among working age households or even among children," she said.

Barnard described this pattern as a "very worrying early warning sign", particularly for pensioners who are still renting.

"I think we're going to see more of those groups ending up in poverty and then, when it gets bad enough, ending up at food banks and other support services."