Changes to the State Pension age have seen poverty rates among 65 year olds more than double, according to a think-tank.
Around 700,000 65 year olds had to wait an extra year before they could claim their State Pension due to the State Pension age increasing from 65 to 66 between 2018 and late 2020, and missed out on around £142 a week during this period, research by the Institute of Fiscal Studies (IFS) shows.
The absolute income poverty rate of 65 years olds at the end of 2020 rose by 14 percentage points to 24% or around 100,000 people. The absolute income poverty rate is defined as the proportion of people with an income of less than 60% of the average inflation-adjusted income in any year.
Increases to the State Pension age are set to continue till 2028 when it will reach 67 for both men and women.
The research, which was carried out on behalf of the Centre for Ageing Better, examined what impact the most recent increase has had. Its key finding was that by delaying their State Pension age to 66, 65-year-olds lost out on an average of £142 a week, or nearly £7,400 a year in 2020. This loss saw the net income of 65-year-olds drop by an average of £108 per week, a sum that many simply couldn’t afford to lose.
Why is the State Pension age rising?
The State Pension is claimed by over 12m people each year, and as life expectancy rises, it’s projected that by 2045 this number will reach over 15.2m – an increase of 28% from the numbers in 2020.
This creates an economic challenge for the government, where if things were to continue at this rate, providing the State Pension would become an even bigger strain on taxpayers than it already is. Changes to the State Pension age so far have boosted public finances by around £4.9 billion per year but have come at a huge cost for hundreds of thousands of 65 year-olds.
How is the rising State Pension age affecting people?
The rise in State Pension age has affected approximately 700,000 65-year-olds, and while some people have been able to continue working or have enough private pension savings to cover their needs, more than 160,000 people are facing income poverty, with some groups harder hit than others. The following have felt the loss more than others:
- Single people – income poverty rose to 38%, 22 percentage points higher than the 16% it would have been without State Pension age reforms
- Those with lower levels of formal education – income poverty rose to 35%, 21 percentage points higher than the 14% without the reforms
- Renters – This group saw the biggest rise to 46%, 24 percentage points higher than the 22% it would have been.
While these numbers are cause for concern in themselves, there are growing fears that these numbers will rise further with the next rise in State Pension age. 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 increased 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 carers 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.”
Andrews highlights that while it may seem that the obvious solution is for people to simply work for longer, the research shows that people are much less likely to be working as they reach their mid-60s. Jonathan Cribb, Associate Director at IFS, said: “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 benefits system appropriately supports those approaching the State Pension age, with this being increasingly important as the State Pension age increases further.’
Currently, however, legislation is not yet in place to support people in this way, leaving the onus on the general public to create their own financial buffer.
What can you do to protect your pension income?
Everyone’s situation is different, and the way that the State Pension age rises affects you won’t be the same for others. While it won’t be possible for everyone, the best way to minimise the impact of the State Pension age rises is to bolster any savings you have now, to help reduce your reliance on State Pension.
If you’re still working and are a few years away from retirement, make sure you’re enrolled in your workplace pension scheme, pay as much as you can into your pension, and make sure you review your pension pot regularly. You will usually be automatically enrolled in your employer’s pension plan, but if you haven’t, you can ask to join. Find out more in our guide How does pension auto-enrolment work?
It’s never too late to start saving, so if you don’t have a pension yet, our article Saving into a pension for the first time can give you some information on how you can start building your retirement savings.
If you’re self-employed, our article Self-employed pension options explained provides guidance on how you can save for retirement if you work for yourself.
If you aren’t working or are taking a career break and you have a partner, they may be able to contribute to your private pension. Our article, Can my husband or wife pay into my pension – or can I pay into theirs? explains how to do this.
If you’re unsure if you have enough pension savings, or are worried that your pension isn’t invested in funds that are appropriate for you based on your approach to risk, you might want to speak to an independent financial adviser who can recommend the best course of action based on your individual circumstances.
You can find a local financial advisor on VouchedFor* or Unbiased*, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
If you aren’t able to save into a pension or work, then it’s important to make sure you are getting any benefits you’re entitled to. Have a look at our articles Everything you need to know about Universal Credit and Benefits if you have a health issue or disability for more information. If you’ve reached State Pension age, it’s worth seeing if you might be eligible for Pension Credit. Find out more in our guide Pension Credit explained.