Pensions are now a bigger store of wealth than property

More wealth is tied up in pensions than in property, particularly among the best off people in the country, new official figures show.

Wealth per household was £302,500 in 2018-2020, at the median or midpoint level. That’s up from £286,600 in the previous two years, and by a fifth when adjusted for inflation over the past 14 years.

Pensions make up 42 per cent of wealth in Britain, and property – minus mortgage debt – represents 36 per cent, according to the latest research by the Office for National Statistics.

What do we own? Pensions are the largest component of total wealth, rather than property

Financial wealth, or savings or investments, makes up 13 per cent and physical wealth, such as house contents and cars, makes up 9 per cent.

But what makes up the biggest share of your wealth depends on how much you have overall, with belongings most significant for the poorest, property for mid-range households, and pensions for the wealthiest in the country.

The above has not changed much since 2016-2018, but the ONS says there has been a shift in the past 14 years, with pensions now the largest component of total wealth, rather than property.

Reasons for this change could include lower levels of home ownership for younger people, varying pension pot valuations, and the introduction of automatic enrolment and increase in the state pension age which are causing people to contribute to their pensions for longer, according to the ONS.

But despite pensions making up such a big proportion of the country’s wealth, there are wide disparities among the older generations, with many very poor pensioners relying on the state pension and benefits.

Source: Office for National Statistics

There was a huge row over the Government’s decision to suspend the ‘triple lock’ guarantee on state pension increases and raise it by 3.1 per cent this year.

And rising inflation, especially energy price hikes, is causing great concern among elderly people struggling to pay their bills.

Meanwhile, Jason Hollands, managing director of Bestinvest, points out that pensions have increased in value on the back of surging global stock markets in recent years.

He adds that the ONS figures reflect the growing pressure on workers to make their own financial provision for retirement.

Source: Office for National Statistics

‘As final salary or defined benefit pensions schemes have closed to new members, and state pension entitlement has been pushed steadily further down the line, the public are waking up to the fact they will need to focus on their own savings and investments to plan for a comfortable retirement.

‘Auto-enrolment has obviously assisted in this, leading to a huge growth in defined contribution pensions and turning vast number of people into long-term investors for the first time.’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: ‘The divide between the richest and poorest groups isn’t widening, but it’s still eye-watering.

‘The richest 10 per cent of households hold 43 per cent of all the wealth, and the least well-off half of the country holds just 9 per cent of the wealth. The mega-wealthy 1 per cent of the country has an average of £3.6million in assets.

‘While pensions make up a major part of the difference, whether you have got onto the property ladder also drives a huge divide between the most and least wealthy.

‘Property wealth is the second biggest component of wealth overall – at 36 per cent. The very wealthiest are much more likely to own their home outright, while those with fewest assets are likely to be struggling to buy their first property.

Source: Office for National Statistics

‘It’s one reason why older people have far more wealth than younger people, who have a mountain to climb to afford their first property.’

The ONS data also shows median wealth was highest for households where a member was aged between 55 years and state pension age at £553,400 – 25 times higher than that of those aged 16-24.

Meanwhile, household median wealth was highest in the south east at £503,400 – up 43 per cent since 2006 after adjusting for inflation – and lowest in the north east at £168,500.