The dynamics of retirement: analyses of the retirement surveys
A hard copy of this report summary can be obtained by contacting Paul Noakes [E-Mail: Paul.Noakes@dwp.gsi.gov.uk] or by writing to him at the 'Social Research Division, Department for Work and Pensions, 4th Floor, Adelphi, 1-11 John Adam Street, London WC2N 6HT'.
Research Report No. 72
By Richard Disney, Emily Grundy and Paul Johnson
The Department of Social Security commissioned the Office for National Statistics (then the Office of Population Censuses and Surveys) to carry out two surveys on retirement. The first, in 1988/9, entailed interviews with a representative sample of about 3,500 people aged between 55 and 69 years in private households, and their partners. Respondents were interviewed again in 1994 to obtain information about their transition to retirement. This report describes analyses of the combined 1988/9 and 1994 findings. The analyses were carried out for the Department by the Institute for Fiscal Studies and Age Concern Institute of Gerontology.
- The average (median) income after retirement represented between 70% and 80% of the value of pre-retirement income. One in six saw their incomes rise by over 50% on retirement, whereas one in five experienced a fall to below 50% of pre-retirement income levels.
- Nearly half of men and one third of women retired before their state pension age. About 10% of early retirement was linked to membership of an occupational pension scheme with a normal retirement age below state pension age; 30% of early retirements were caused by ill-health, and a further 14% were employer-instigated.
- Between the two waves of the survey, just over two fifths of respondents saw no change in their savings while about two fifths experienced an increase. There was a statistical relationship between a decrease in financial wealth and the onset of, or worsening, disability.
- Of individuals who received income from an occupational pension in 1988/9 and 1994, 30% saw their real value decline by more than 5%. About 30% experienced an increase of more than 5% in real terms between the two survey waves. Men's pensions had less generous indexation, on average, than women's pensions.
- Half of respondents with high levels of disability and over one-third of those receiving Attendance Allowance stated that they received no help with everyday activities such as bathing and dressing.
Introduction
Longitudinal analyses of survey data enable us to follow individuals over time. They can, therefore, offer insights into how circumstances and expectations change over a period, and the extent to which plans and aspirations are realised. This report describes findings from two Retirement Surveys, commissioned by the Department of Social Security and undertaken by the then Office of Population, Censuses and Surveys in 1988/9 and 1994. The surveys provide a unique opportunity to look at the circumstances of a representative sample of people aged 55-69 when first interviewed, and their partners, and at what happened during their transition into retirement. The analyses were comissioned by the Department of Social Security and carried out by the Institute for Fiscal Studies and Age Concern Institute of Gerontology.
Retirement and labour market activity
Nearly half of men and one third of women retired before their state pension age. About 10% of early retirement was linked to membership of an occupational pension scheme with a normal retirement age below state pension age. 30% of early retirements were caused by ill-health. Just over one third were the result of individual 'positive' choices, particularly prevalent amongst people with occupational pensions, and a further 14% were employer-instigated. There was an increase between the survey waves of about 8% in the proportion of men and women aged 60-64 citing ill-health as a reason for leaving employment before state pension age.
Nearly one third of women but less than 8% of men retired after their state pension age. More than half of men in this category were self-employed.
Disability and caring
The extent of disability in the two waves, and changes in disability between waves, varied substantially by socio-economic factors but not by gender. The level of disability did not change between waves for over half of respondents although those with initially high levels of disability who survived to the second wave experienced, on average, some improvement in their condition.
Half of respondents with high levels of disability and over one-third of those receiving Attendance Allowance stated that they received no help with everyday activities such as bathing and dressing. About 35% of men and 45% of women aged 55-69 in 1988/9 received help with meals, shopping, housework and paperwork.
Respondents in receipt of disability benefits had, on average, much higher levels of disability than non-recipients. However, a high percentage of severely disabled people received no such benefits.
In the 1994 wave, one half of men and two thirds of women were either currently giving care to someone else or had done so in the past.
Income dynamics
The mean individual weekly pre-tax income of those who were retired in both waves rose from £111 (1996 prices) per week in 1988/9 to £127 (1996 prices) per week in 1994. Most of this increase was accounted for by the increased proportion in receipt of state pension, together with the timing of state pension upratings. Individuals who had reached state pension age by 1988/9 saw only a modest rise in their incomes.
The average income of women who were retired both in 1988/9 and 1994, and were widowed in the intervening period, rose from just under £50 (1996 prices) per week in 1988/9 to around £120 (1996 prices) per week in 1994. Just under half of this group began to receive occupational pensions based on their late husband's employment, and most saw a significant increase in their state pension receipt. Women who were widowed between the two survey waves and who regarded themselves as `retired' in 1994 saw a drop of about 40% in their mean benefit unit income over the period. Their outgoings would have decreased, but not necessarily by the same proportion.
Post-retirement incomes replaced, on average, between 70% and 80% of the value of pre-retirement income. One in six saw their incomes rise by over 50% upon retirement, whereas one in five experienced a fall to below 50% of pre-retirement levels. Replacement rates of over 100% tended to be caused by depressed levels of pre-retirement income. The lowest replacement rates were mainly caused by poor non-state pension coverage and/or low state pensions.
The findings suggest that retirement from employment is not a gradual move through part-time work, but an abrupt transition.
Non-state pensions
81% of men and 42% of women had at some time belonged to at least one occupational pension scheme. Women who had joined a scheme were more likely than men to end up with no occupational pension. Married men, and women who had never married were most likely to have an occupational pension. 78% of professional men had a pension compared to 68% of semi/unskilled men. Only 31% of people with zero financial assets had a pension compared to 61% of those with savings in excess of £30,000.
Of individuals who received income from an occupational pension in 1988/9 and 1994, 30% saw their real value decline by more than 5%. About 30% had an increase of more than 5% in real terms between the two waves. Men's pensions had less generous indexation, on average, than women's pensions. Individuals with generous occupational pension tended to retire early voluntarily, whereas those with small pensions generally continued in work until or after state pension age, unless they were forced to retire early.
Only 7% of individuals had a personal/private pension, reflecting the relatively recent growth of this type of pension. The majority of schemes were joined when the individual was self-employed.
Financial assets
Respondents were very unlikely to be in debt. About 80% of individuals had some form of financial wealth, although only one third had invested specifically for retirement. There was a shift between 1988/9 and 1994 away from relatively `safe' savings to riskier assets such as stocks and shares.
Between the two survey waves, just over two fifths saw no change in their savings (as measured by staying in the same assets band), whereas about two fifths experienced an increase. There was a statistical relationship between a decrease in financial wealth and the onset of or worsening disability. Respondents who retired between the two waves or who continued in work were more likely to see an increase in their savings than those who were retired throughout.
A quarter of those retiring between the two waves received and invested a lump sum from their pension. Around 20% of benefit units in 1994 had at some time inherited some property. Such legacies tended to happen to the lifetime rich.
The level of financial assets in retirement reported in 1994 had been correctly anticipated by about one third of individuals at the first interview in 1988/9.
Housing wealth
About two thirds of respondents were home owners. Some benefit units with housing wealth had very low incomes. Such people had not traded down. Only about 7% of homeowners moved home between the waves. Any trading down seemed to be driven by negative shocks such as death of a partner or the onset or worsening of disability.
Only about 3% of benefit units moved from rented accommodation to owner-occupation between the waves. Even fewer moved in the opposite direction.
Relevant publications
An earlier report presents findings from the first Retirement Survey:
Bone, M., Gregory, J. Gill, B. and Lader, D. (1992) “Retirement and Retirement Plans ”(Social Survey Division, Office of Population Censuses and Surveys). London: HMSO.
A qualitative study was commissioned to complement the Retirement surveys:
Elam, G. and Finch, H. (1995) “Managing Money in Later Life ”(DSS Research Report No.38). London: HMSO.
Other related publications:
“The Pensioners' Income Series 1995/96”. Government Statistical Service,1997
Whiteford, P. and Kennedy, S. (1995) “Incomes and living standards of older people ”(DSS Research Report No.34). London: HMSO.