The stereotype of retirement is that you downsize, learn to live on a fixed income, and reign in your expenses as income from work disappears.
But since the 2008 financial crisis, it is workers in Britain who have fallen behind and pensioners who have become wealthier.
One way to think about inequality in Britain today is that retirees and workers are now on two different economic tracks:
- For pensioners — the generation that retired with generous defined benefit pension schemes that pay a salary percentage forever — life has never been so good. They were shielded from the crisis by “triple-lock” guarantees that increase pensions by the same percentage as average earnings, the consumer price index, or 2.5%, whichever is the highest.
- For workers, wages have been slow to recover, with zero per cent income growth in some years since 2008. And defined benefit pensions have largely been scrapped for younger workers, in favour of much less lucrative defined contribution pensions. That can cost younger workers £6,318 ($US7,678) per year, according to this calculation.
The result is that Britain now looks like a counterintuitive mirror of the stereotype: It is the workers whose incomes are flat and pensioners who enjoy annual raises.
The big change happened in the last recession.
The 2008 crisis knocked the UK economy off an income growth track from which it has not recovered. If the 2008 crisis had not happened, average incomes in Britain would be 20% higher now than they were that year, according to new data from the Institute for Fiscal Studies. Instead, they are only about 5% higher.
Projected to 2021-2022, the IFS says, the lost growth will have cost workers £5,900 per year for a childless couple and £8,300 for a couple with children.
But pensioners lost very little.
The IFS data add to a pile of research which suggests Britain is sharply divided between those who have defined benefit pensions and those who do not; and those who own property and those who do not.