Better prepared for retirement? Using panel data to improve wealth estimates of ELSA respondents

We compare the key assumptions underpinning estimates of the pension wealth of ELSA respondents to outcomes over the period from 2002-03 to 2004-05. We find that many of these assumptions have, on average, proved cautious or reasonable. Improving pension wealth calculations using this new evidence makes little difference to the distribution of pension wealth. Previous estimates of retirement resources also considered net financial, physical and housing wealth. Particularly cautious, ex-post, was the assumption that net housing wealth would remain constant in real terms. We find that average housing wealth has risen by almost 40% in nominal terms over just two years, which is in line with growth in the Nationwide House Price Index. This large increase in house prices boosts estimates of total wealth across the entire distribution of wealth. Previous research showed that once half of current net housing wealth was included as a retirement resource 12.6% of employees approaching retirement were estimated to have resources below the Pensions Commission's definition of adequacy. We show that taking into account the high growth in house prices between 2002-03 and 2004-05 reduces this to 10.9%, and that it would fall by a further 1.2 percentage points if house prices were to grow by 2.5% a year in real terms in the future.