Pensions make up more than any other component of total net household wealth at 42 per cent, although inequalities remain within pension provisions, data from the Office for National Statistics (ONS) has revealed.
The ONS noted that the proportion of pension wealth has increased over the past 14 years, likely due to the introduction of auto-enrolment, increases to state pension age, and varying defined benefit (DB) pension pot valuations.
Retired households were found to be wealthier than those of working age, with an average household wealth of £489,300 for retired households compared to £302,500 for those of working age.
However, pensions were one of the areas with the greatest inequality, as the data showed that whilst the top 1 per cent held average household pension assets of around £2m, the average pension for those aged 55-65 was just over £200,000.
Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, highlighted the data as demonstration of “the power of pensions as a wealth building strategy” with private pensions making up the largest component of total wealth.
She also noted that whilst age will play a role, as older people will have had a longer time to save and the increased likelihood of being a member of a final salary pension, the data “clearly shows pensions are a powerful tool”.
“Property makes up a larger proportion of wealth among more middle-income groups while lower income groups are more reliant on physical wealth. However, over time as auto-enrolment continues we will see pensions forming a larger portion of the wealth of these groups too,” she continued.
“However, we can see challenges ahead. DB schemes are on the decline and contributions to defined contribution schemes tend to be much lower."
In particular, Morrissey raised concerns over the finding that nearly three-quarters of households with a retired head owned their home outright, compared with less than 30 per cent of self-employed and less than 20 per cent of employee-led households.
“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," she warned.
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