Private pensions grow three times the rate of state pensions

The average income for a pensioner household has increased by 83% in real terms (i.e. after allowing for retail price inflation) in the past 20 years; from £212 per week in 1987 (in 2007/08 prices) to £389 per week in 2007/08, says Lloyds TSB. During the same period average earnings in the economy as a whole grew by 34% in real terms.

The increase has been driven primarily by the growth in private pension income, which has risen by 131% since 1987 - three times the rate of growth in state pensions (43%). Average household income from private pensions grew from £97 per week in 1987 to £224 per week in 2008. State pensions increased from £115 per week to £165 per week during the period.

There has been a significant shift in the balance between pension income sourced from the state and private pensions since 1987. Almost 60% of the income of an average pensioner household is now sourced from private pensions compared to 46% in 1987.

Occupational earnings have grown only marginally to just 24% of the gross income of pensioner households in 2008 from 22% in 1987. State pensions have steadily declined in importance as a proportion of pensioners' income, falling from an average of 54% in 1987 to 42% in 2008.

Nitesh Patel, economist at Lloyds TSB Wealth Management said: "There has been a significant increase in the average pensioner household's income over the past 20 years. Much of this rise has been driven by the growing importance of privately sourced income to provide for retirement. Pensioners' income from private sources has grown by three times the increase in state pensions in 1987."

Prabal Gupta, Propositions, Investments and Marketing Director, UK Private Banking comments: "Almost 90% of pensioners have some form of private income that supplements their state pension. However, only 40% of pensioners receive more than half of their income from these private sources. It is very important to plan you finances for retirement years early in order to achieve the desired quality of life when no longer working. It is also important to regularly review pension provision to make sure that it's still meeting your needs."