How Have Reforms to the UK State Pension Affected Inequality?

We quantify the implications of reforms to the UK state pension system over the last 40 years for inequality in state pension income and wealth and the relationship between working-life earnings and state pension entitlements. We combine rich microdata from the English Longitudinal Study of Ageing with the rules of current and past system to simulate retirement incomes as they are under current rules and would have been in the absence of reforms. Despite an increase in inequality in the lifetime earnings of older workers, recent decades have seen the distribution of retirement incomes become more equal. A large part of this is due to reforms which have expanded entitlement to the flat-rate component of the state pension and made it more generous, while dramatically reducing and then eliminating the earnings-related component. At the same time, the present value of accrued state pension wealth has become more related to earnings for men. This is because more generous indexation is more valuable to those who have longer retirements and men with higher working life earnings, on average, live longer. For women, the life expectancy gradient is shallower with respect to their own earnings and recent reforms have equalized the distribution of state pension wealth.