IFS Reports (R72)

The adequacy of wealth among those approaching retirement

Date: 23 October 2012
Authors: Rowena Crawford and Cormac O'Dea
DOI: 10.1920/re.ifs.2012.0072
There has been ongoing concern in many quarters in recent decades that individuals in the UK are not saving enough to provide themselves privately with an adequate income in retirement. A number of long-run trends have acted to make it harder for individuals to accumulate sufficient resources, including unexpectedly rapidly increasing life expectancies and the reduced availability of defined benefit (DB) pensions in the private sector. The Pensions Commission was appointed in 2002 with the remit of 'keeping under review the adequacy of private pension saving in the UK, and advising on appropriate policy changes', and its first report (Pensions Commission, 2004) projected that many people, particularly those with defined contribution (DC) pensions, would have 'inadequate' resources in retirement.

The most comprehensive investigation of the adequacy of likely retirement resources among individuals in England was contained in Banks et al. (2005). This report provides an update and extension of that work using the English Longitudinal Study of Ageing (ELSA). Such an update is warranted since recent years have been particularly turbulent: reforms to the state pension system introduced by the Pensions Act 2007 have changed the amount that individuals can expect to receive from the state, while the recent financial crisis affected asset prices and potentially the amount individuals might expect to get from their private pensions.

This report therefore provides a new assessment of the proportion of people aged between 50 and the State Pension Age (SPA) who are at risk of having inadequate resources in retirement and considers the characteristics associated with the risk of such inadequacy. We make use of data from ELSA on 2,534 individuals in families where everyone is below the SPA and does not yet report being retired. For these individuals, we estimate their family income at the SPA from state and private pensions and other potential sources and we compare that income with what might be considered to constitute an ‘adequate’ income in retirement.