Increasing the state pension age is a coherent way for the
government to ease pressure on the public finances from rising
longevity at older ages. But new research shows that the effects
of previous state pension age increases have not been felt
equally, with women already out of employment in their late 50s
being particularly hard-hit by the rise from 60 to 66 that
occurred between 2010 and 2020.
In particular, on average they experience a bigger drop in income
as a result of state pension age increases. These women are more
likely to have a low income, to be in poor health or to have a
disability. Previous research has shown that state pension age
rises led to a big boost in employment, but also pushed more
people into income poverty.
State pension age increases are still appropriate as life
expectancy rises. But this research underlines the need to find
ways to help people stay in paid work at older ages, as well as
provide additional targeted financial support for those who find
it particularly difficult to adapt to a higher state pension age.
These issues need to be carefully considered by the third review
of the state pension age, which the government launched in July.
These are key conclusions from new research, published today by
IFS and funded by the IFS Retirement Saving Consortium.
Additional details on the findings include:
- A key reason that state pension age increases have
particularly hit the incomes of women already out of employment
in their late 50s was that very few re-entered paid work in
response to the reform. In contrast, for those who were in paid
work in their late 50s, their employment rate at ages 60–64
jumped by 16 percentage points, as significant numbers delayed
their retirement.
- This means that falls in average income at ages 60–64 as a
result of the increase in the state pension age were larger (a
fall of £81 per week) for women who were out of employment in
their late 50s than for those who were still in paid work in
their late 50s (a fall of £42 per week).
- Despite these falls in income, we find no evidence of a fall
in average spending on some essential items such as food and
energy. However, the likelihood of participating in social
activities – such as visiting museums or theatres, or being part
of a sports or social club – fell by 8 percentage points (from a
baseline of 53% pre-reform) among all women affected by the rises
in the state pension age.
- Life satisfaction fell by 0.25 points on a 0 to 10 scale for
all affected women (with a pre-reform average of 7.5), compared
with 0.38 points for those who were already out of paid work.
This fall is small. Previous research at the London School of
Economics shows that given the significant exchequer gain from
increasing the state pension age (a one-year increase strengthens
the public finances by about £6 billion a year), the falls in
well-being are modest compared with the potential beneficial
effects on well-being from other ways of allocating public
spending.
Heidi Karjalainen, Senior Research Economist at IFS and
an author of the report, said:
‘Raising the state pension age is an important lever for easing
fiscal pressures from an ageing population, but our research
shows that the costs of increases so far have not been equally
felt. Women already out of paid work by their late 50s, often in
poor health and on low incomes, rarely return to paid work in
response to a higher state pension age. Instead, they experience
larger income losses and reduced participation in social
activities.
‘These findings do not mean that the state pension age should not
continue to rise. Instead, they highlight the importance of
enhanced support for those most harmed by increasing the state
pension age. In general, helping people remain in, or return to,
paid work at older ages, while providing additional targeted
financial support for those who cannot, can also help maintain
public support for future increases. And this could be done by
using a small fraction of the boost to the public finances
arising from an increase in the state pension age.'
The authors gratefully
acknowledge funding for this work from the IFS Retirement
Saving Consortium 2023-25 and the Economic and Social Research Council (ESRC)
Joint Programming Initiative: More Years Better Lives.
Notes to Editor
How do people already out of employment fare when the state
pension age rises? is an IFS report by Jonathan Cribb,
Anna Henry and Heidi Karjalainen.
The IFS Retirement Saving
Consortium was put together to fund specific
research projects into saving and pensions.
The consortium is made up of
organisations with an interest in pensions policy. These are:
- Aegon
- Age UK
- Association of British Insurers
- Association of Consulting Actuaries
- Aviva
- Department for Work and Pensions
- Franklin Templeton
- Institute and Faculty of Actuaries
- The Investment Association
-
Foundation
- Lane, Clark and Peacock
- Money and Pensions Service
- Nucleus
- Pensions UK
- The People's Pension
- Royal London
- Standard Life
