Between late 2018 and late 2020, the state pension age for men
and women rose from 65 to 66, meaning that the approximately
700,000 65-year-olds in the UK had to wait another year before
they could receive a state pension. The key impact of this was
that 65-year-olds missed out on state pension income of £142 per
week on average.
These reductions in state pension income meant that the absolute
income poverty rate for 65-year-olds rose by 14 percentage
points, or nearly 100,000 people, to reach 24% by late 2020. The
higher state pension age also encouraged around 9% or 60,000 more
65-year-olds to stay in their job and retire later.
These are some of the key findings of new research
published today by researchers at the Institute for Fiscal
Studies, which has been funded by the Centre for Ageing
Better. The research analyses how household incomes and
income poverty rates have been affected by the increase in the
state pension age from 65 to 66. This is particularly important
as there is an ongoing independent review of the state pension
age for the Department for Work and Pensions, led by .
Other key findings from the new research include:
- The groups most adversely affected by the increase in state
pension age were those less likely to be in work at age 65 anyway
and who have less private income to rely on. That means that
the less well educated, those in rented accommodation and
single people were hardest hit. Most of the increase in
income poverty for 65-year-olds due to the reform has been among
people not in paid work.
As a result of increasing the state pension age from 65 to 66,
- the income poverty rate of single people aged 65 rose by
22 percentage points, from 16% to 38%;
- the income poverty rate of 65-year-olds with at most
GCSE-level education rose by 21 percentage points, from 14%
to 35%;
- the income poverty rate of 65-year-old renters rose by 24
percentage points, from 22% to 46%.
-
The rise in the state pension age from 65 to 66 led to
larger increases in income poverty rates among those affected
than the increases in poverty rates seen following earlier
rises in the female state pension age. This is due to
a growing gap in state support over time for those just above
and just below the state pension age, together with the fact
that people are more reliant on state support at older ages as
fewer people are in paid work.
- With lower state benefits and higher tax revenues from
employment, the increase in state pension
agefrom 65 to 66 boosted the
public finances by £4.9 billion per year, equivalent to
around a quarter of 1% of national income, or 5% of annual
government spending on state pensions. The benefit to the
exchequer is the key counterpart to the reductions in household
incomes caused by the reform.
Laurence O’Brien, a Research Economist at IFS and an
author of the report, said:
‘Increasing the state pension age is a coherent government
response to increases in life expectancy at older ages and the
resulting pressures on the public finances. But it does weaken
household budgets. We find that 14% of 65-year-olds were in
income poverty in late 2020 as a direct result of the state
pension age rising from 65 to 66, with this concentrated amongst
renters, single people and those with lower levels of education.’
Jonathan Cribb, an Associate Director at IFS and the
other author of the report, said:
‘The rise in the state pension age to 66 led to a bigger increase
in income poverty rates than was caused by previous increases in
the female state pension age. This is due to the growing gap in
the generosity of financial state support between those above and
below the state pension age, as well as the fact that people in
their mid-60s are less likely to be in employment and therefore
more dependent on the state pension for income than those in
their early 60s. A key takeaway for policymakers is to ensure the
working-age benefit system appropriately supports those
approaching the state pension age, with this being increasingly
important as the state pension age increases further.’
Emily Andrews, Deputy Director for Work at the Centre for
Ageing Better, said:
‘These statistics are shocking and show that the number of
65-year-olds in absolute poverty rose from one in ten before the
state pension age increase to almost one in four just two years
later. The severity of this situation means it is crucial the
government gets serious on improving access to work for people in
their 60s: investing in tailored employment support for those out
of work, expanding access to occupational health support, and
bringing flexible work and carer’s leave proposals into
legislation.
'But even if the government can deliver all this, for those who
are unable to access work, the raising of the state pension age
will leave them poorer – and in many cases, actually
impoverished.
What this research tells us is that further increases in the
state pension age must be accompanied with a holistic review of
how our social security system supports us as we age, and how to
mitigate the hardship awaiting those whose ability to work is
compromised in the years before they reach pension eligibility.’
ENDS
Notes to Editor
How did increasing the state pension age from 65 to 66 affect
household incomes? is a report by Jonathan Cribb and
Laurence O’Brien.
