ONS data confirms power of pensions as a wealth building strategy

11 January 2022

Pensions are a powerful wealth building strategy, with retired households wealthier than those of working age, data from the Office for National Statistics has shown.

Average wealth was found to be highest among those aged 55-65, at £553,400 – 25 times the wealth of those between 16 and 24.

According to the figures, pensions make up 42% of wealth – more than any other component.  Pensions have risen over the past 14 years, partly because of the way defined benefit pensions are valued and partly because auto-enrolment has meant more young people are saving for a pension.

The average pension for those aged 55-65 was just over £200,000, while the top 1% held average household pension assets of around £2 million.

The data also showed that almost three quarters of households with a retired head owned their home outright, compared with less than 30% of self-employed and less than 20% of employee-led households.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “This data shows the power of pensions as a wealth building strategy with private pensions making up the largest component of total wealth. The most comfortable households were the ones where the head is retired.

“Clearly this will be down to this group tending to be older so having had a longer time to save and the increased likelihood of being a member of a final salary pension but the data clearly shows pensions are a powerful tool.”

However, Morrissey warned that there are challenges ahead with defined benefit schemes on the decline and contributions to defined contribution schemes tending to be much lower.

Morrissey said: “Given lower rates of home ownership among younger people it’s becoming more likely people will be paying their mortgages to later ages and even into retirement and this could have an impact on how much people can contribute to their pensions. This could also prove an issue for the self employed who tend to rely more on property rather than pensions to build their wealth.”

The ONS data showed that average household net wealth was £302,500 between April 2018 and March 2020, a marginal increase on the previous period but a 20% increase compared with July 2006 to June 2008.

The wealth of the richest 1% of households was more than £3.6 million, with household wealth the highest in the South East, having risen 43% since 2006.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, added that while pensions were an important part of wealth accumulation, also important was home ownership. “Property wealth is the second biggest component of wealth overall at 36%.

“Financial wealth, including investments and savings make up 13% of wealth but the richest households are far more likely to hold this kind of asset. Of course, a huge part of this is the fact they have more to invest to begin with. However, they have also benefited from growth on their investments over the years. It demonstrates the power of saving and investing over the long term.”

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