State pension age increase doubled poverty rates, says IFS

Increasing the state pension age has had a devastating impact on the incomes of older people, research shows.

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New research published today by the Institute for Fiscal Studies (IFS), funded by the Centre for Ageing Better, explores how recent changes to the state pension age has impacted household incomes and poverty rates among older people.

Between late 2018 and late 2020, the state pension age for men and women rose from 65 to 66 between 2018 and 2020, meaning that approximately 700,000 65-year-olds in the UK had to wait another year and missed out on £142 per week on average.

According to the IFS, 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 IFS highlights how there is ongoing independent review of the state pension age for the Department for Work and Pensions (DWP), led by Baroness Neville-Rolfe.

Researchers at the IFS discovered that the groups most adversely affected by the increase in state pension age were less likely to be in work and had a lower household income.

As a result of increasing the state pension age from 65 to 66, the IFS found that the income poverty rate of single people aged 65 rose from 16% to 38%.

Additionally, the income poverty rate of 65-year-olds with at most GCSE-level education rose from 14% to 35%, while the income poverty rate of 65-year-old renters rose from 22% to 46%.

However, the increase in state pension age also handed the Treasury an extra £4.9 billion per year.

The DWP announced last week that the state pension age would go up by a further two years, rising to 68 between 2044 and 2046.

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.”

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