Working middle income families lose out since financial crisis

POSTED: 13th December 2013
IN: Personal News

The Office for National Statistics (ONS) reports that working middle income households have been the biggest financial losers since the start of the economic downturn in 2008.

undefinedThe ONS found that the average income from employment and investments for median-income non-retired households fell by 6.4 per cent between 2007/08 to 2011/12 from £27,053 to £25,761.

By contrast, retired households have seen a 5.1 per cent increase in median incomes, up to £19,253 in 2011-12.

The ONS said the reason for the increase in incomes for retired households is that more people are working into their retirement, high incomes from personal pensions and the government’s policy of guaranteeing that the state pension goes up by at least the rate of inflation.

Employed workers have had to get by on annual wage growth that has lagged behind inflation in recent years.

Inflation fell from 2.7 per cent to 2.2 per cent in October, but is still three times the level of average annual earnings growth of 0.7 per cent.

The ONS said: “The largest driver of this increase was income from private pensions, which grew by 22 per cent.

“This was partly due to more recently retired people receiving higher incomes from private pensions, on average.

“The other source of growth over this period was the State Pension which grew by 9 per cent for the middle fifth of retired households."

The ONS said that income from private pensions had gone up to £5,560 between 2008 and 2013 and now accounts for a third of the income for retired households on middle incomes.

However, even as overall incomes for middle earners who work have fallen, so has the amount of tax they pay.

The ONS said that the average amount of direct taxes paid by median income families fell from £8,700 in 2007 to £6,800, down to 18.3 per cent of income from 21.1 per cent.

Matthew Whittaker, senior economist at think tank Resolution Foundation, said: “The figures reveal a dramatic generational difference - with the incomes of working-age households falling by more than six per cent since 2008 while those of retired households have continued to rise.”

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