Check out the report here for even more wonky details about valuing private pensions! ifs.org.uk/publications...

Interest rates have risen since 2022. We would therefore expect our approach to produce more similar numbers to the ONS in the next data release (covering 2022–24).

However, they could diverge again going forwards if market interest rates change once more.

Another effect is to shrink gaps in wealth by age. This is because discounting matters more for people who are further from retirement.

People aged 20–39 held 18% of all wealth in 2020–22 under our measure compared with only 11% under official statistics.

One effect of this is to widen gaps in wealth by education. This is because more educated people are more likely to hold DB pensions.

Wealth for people with a degree increases by 50% in 2020–22 when we apply our changes. For people with no qualifications, the increase was <20%.

In the latest data, covering 2020–22, discounting by market interest rates makes pensions much more important.

54% of total household wealth was in pensions under our measure, compared to 38% in official stats.

This is because market interest rates were very low in 2020–22.

Our report then answers
(i) what if you instead discount by a market interest rate and
(ii) what if you applied this to all rounds of the data?

Importantly, you have to discount by a market interest rate to estimate the market value.

The ONS instead discounts by forecast GDP growth. This isn't going to give a good estimate of the market value of these pensions.

DB pensions are not a pot, but a promise of future income.

To get the market value today of that future income, we have to 'discount it'. This reflects that people value £100 received next year less than receiving £100 today.

Pensions, however, are not tradeable. We therefore have to estimate what their market value would be if they were tradeable, to create a valuation consistent with other types of assets.

For DC pensions, we can just take the value of the pot.

Even in the latest round, pension wealth is calculated in a way that's inconsistent with other types of assets.

For other types of assets, wealth is essentially defined as the market value of these assets.

Up to a few years ago, there were several problems with how official statistics calculated private pension wealth.

ONS fixed many of these in the latest round of data. But they didn’t apply these fixes to previous rounds of data, leading to a structural break in the series.

How is wealth distributed in the UK and how has this changed?

Currently, official statistics don't give a good answer: they calculate pension wealth in a way that's inconsistent over time and with how other assets are valued.

New @theifs.bsky.social report with Isaac Delestre fixes this: 🧵

You can read the full briefing, written with Jonathan Cribb and @heidikarj.bsky.social, here:

ifs.org.uk/articles/sta...

To help support people who can’t work to a higher SPA, the government should also consider more generous means-tested support to people just below SPA.

This could help maintain public support for future SPA increases.

But not increasing the SPA any further would significantly add to pressures on public finances.

Even assuming the SPA rises to 69 in early 2070s, the OBR forecasts state pension spending to rise to almost 8% by then, from 5% today.

However, they have also led to a reduction in household incomes and increases in income poverty rates.

Income poverty rates for 65-year-olds more than doubled following the increase from 65 to 66.

How have past SPA increases affected people?

On the one hand, previous IFS research found that past SPA increases have led around 10% of people to delay retirement and work longer.

As well as rising life expectancy, the other key rationale for increasing the SPA is the benefit to public finances.

The OBR estimates that net saving from increasing the SPA from 66 to 67 will be £10bn per year by the end of the parliament.

The SPA has risen since 2010, first to 65 for women, then to 66 for everyone. Further universal increases to 67 and 68 are legislated.

Despite these SPA increases, increases in life expectancy mean the years men can expect to live after reaching SPA has been kept constant at 19.

Between 1948 and 2010, the SPA was unchanged at 65 for men and 60 for women. Meanwhile, life expectancy at older ages increased.

As a result, the number of years people could expect to spend over SPA rose over this period.

From next Monday, the state pension age (SPA) will start gradually going up again from 66 to 67, affecting people born on or after 6 April 1960.

What is the rationale for this? What effects might it have on people? And should we expect any further increases? [THREAD]

The SPA has risen since 2010, first to 65 for women, then to 66 for everyone. Further universal increases to 67 and 68 are legislated.

Despite these SPA increases, increases in life expectancy mean the years men can expect to live after reaching SPA has been kept constant at 19.

Years of remaining life expectancy at SPA for men, by year of birth. The figures shows that years of remaining life expectancy at SPA rose by almost 5 years between 1920 and 1950.

Between 1948 and 2010, the SPA was unchanged at 65 for men and 60 for women. Meanwhile, life expectancy at older ages increased.

As a result, the number of years people could expect to spend over SPA rose over this period.

More or Less - The Stats of the Nation - Older People, Education, Prisons and the Weather - BBC Sounds Tim Harford explores the stats on pensioners, exams, justice and climate change.

I had a great time chatting about older people with
@timharford.ft.com on BBC4 More or Less. The starting question was – are one in four pensioners really millionaires? Quick thread below: www.bbc.co.uk/sounds/play/...

Small pension pots: problems and potential policy responses | Institute for Fiscal Studies What are the consequences of the proliferation of deferred small pension pots and what are the merits of different potential policy responses?

For more detail on our research on the small pots problem, check out our report from earlier this year.

ifs.org.uk/publications...

Only consolidating pots worth <£1k would still mean many people would reach retirement with savings scattered across several pots.

No timeline was announced for the consolidation of larger deferred pots. But the Minister for Pensions did indicate this could happen in the future

The DWP report contains lots of detail on how this will be implemented in practice. They plan to create a Small Pots Data Platform to carry out the consolidation.

Good to see that they will consider how this platform could build on the work done for Pensions Dashboard.

The government has announced plans to automatically consolidate deferred pots worth up to £1k into one of a number of consolidator schemes.

Overall, this will be a large improvement on the status quo, reducing costs for pension providers and complexity for individual savers.

Earlier this year, we showed that lower earners, younger employees and women are particularly likely to accumulate these small pots.

The proliferation of these small pots matters.

First, it is costly for pension providers, leading to higher charges for savers.

Second, it makes it easier for people to lose track of their savings, and much harder to make good decisions on using wealth in retirement.