Rise in state pension age doubled poverty rates

Increasing the UK state pension age from 65 to 66 between 2018 and 2020 caused income poverty among 65-year-olds to more than double, according to new research from the Institute for Fiscal Studies (IFS).

The report said “absolute income poverty rates” — after accounting for housing costs — among 65-year-olds increased from around 10% to 24% as a result of the state pension age rise.

The main impact of the state pension age increase was the loss of state pension income worth around £142 per week on average.

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 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,” said the IFS.

“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 …

” … 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%.”

Laurence O’Brien, research economist at the 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, associate director at the 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.”

Tom Selby, head of retirement policy at AJ Bell, said: “For those on very low incomes, increasing the state pension age by just a year can be enough to push people into serious financial turmoil.

“And while there are ways to replace at least part of this lost income – either via in-work benefits, from your private pension pot or by working longer – the evidence suggests lots of people are either unable or unwilling to go down this road.

“As a result, millions of people saw their state pension income plummet by £142 per week on average, or over £7,000 during the year.

“Even taking into account increases in private income, on average net income plummeted by £108 per week.

“For anyone already struggling to make ends meet, missing out on thousands of pounds in pension income will inevitably force them into making painful budgeting choices in order to survive.”