Private pensions form the bulk of UK household wealth with an average value of £450,000, the Institute for Fiscal Studies has said in a report published on Thursday, updating official figures with its own calculations. The IFS also believes the wealth gap between young and old has been overstated since 2010.

The Office for National Statistics has changed how it measures pension wealth, but this has not been applied to past years, the IFS has said. These methodology changes “rectified some longstanding problems”, the institute said, but the fact that pensions are now measured differently means the statistics are not comparable over time. The IFS has now proposed what it says is “an improved measure of private pension wealth” that can be calculated “coherently and consistently over time”.

The issue with ONS figures arises from the discount rate used, the researchers said, which means its effect was greater during the era of ultra-low interest rates.

Methodological changes and inconsistencies have made it difficult to get a clear picture of wealth inequality in the UK or how this has changed over time, said senior research economist at the IFS, Laurence O’Brien.

“Addressing these issues reveals that the share of wealth held by the top 10% has fallen by more since 2006–08 than suggested by official estimates. In addition, young adults held a much higher share of wealth than previously thought, while gaps in wealth between educational groups were wider than official estimates show,” he said. 

The IFS figures suggest that more than half (54%) of the UK’s total household wealth was held in pensions in 2020–22, compared with only 38% according to official statistics; this would mean average household pension wealth is nearly twice as high as the ONS stated, at £450,000 instead of £230,000.

Under the IFS approach, the share of household wealth held by people aged 20–39 rose considerably over the 2010s, from 10% in 2010–12 to 18% in 2020–22. Official statistics suggested it stayed at 8% until 2018–20 and only rose marginally to 11% in 2020–22.

People with degrees are more likely to hold private pension wealth of which the value was understated by the ONS approach, which means gaps in wealth by education were wider in 2020–22 than suggested by official statistics. Median wealth for graduates was 50% higher under the IFS methodology than under the ONS methodology in 2020–22, while for people with no formal educational qualifications, it was less than 25% more.

The IFS figures also suggest that the top 10% of households in terms of wealth saw a greater fall than previously thought, from a share of 45% in 2006-08 to 42% in 2018-20, where it remained until 2022. Between 2006–08 and 2018–20, the current ONS estimates instead suggest that their share fell only marginally, from 46% to 45%.