Raising the state pension age from 65 to 66 has resulted in around 100,000 people ending up in poverty according to a new study by the Institute of Fiscal Studies.
This is around one in seven of the 700,000 people affected by this change the think tank said. As a result almost a quarter of 65-year olds are now in absolute income poverty, according to the IFS, more than double the numbers prior to this change.
Those affected missed out on an average income of £142 a week. While some were able to work for longer to bridge this gap, those falling into poverty were typically unable to replace this income through other means. The IFS said that those most badly affected tended to be single, living in rented accommodation, and often with lower levels of education.
The IFS study said that as a result of this change the absolute income poverty rate for those aged 65 rose by 14 percentage point to reach 24 per cent by late 2020.
The IFS said: “The reform causes absolute income poverty rates among 65-year old to climb to 24 per cent, more than double the 10 per cent we estimate it would have been had the state pension age remained at 65.”
The IFS calculated that with lower state benefits and higher tax revenues from employment, the increase in state pension age from 65 to 66 boosted the public finances by £4.9bn a year — equivalent to around a quarter of 1 per cent of national income, or 5 per cent of annual government spending on state pensions.
The problem is likely to further exacerbated by the fact that an increased number of over 60s have left the workplace during the Covid pandemic.
IFS associate director Jonathan Cribb says: “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.”
Former pensions minister Ros Altmann has said this report should prompt the government to review future rises to the state pension, as part of its ongoing review. She called for additional flexibility, allowing people in need to take at least part of their state pension early.
This was a view shared by others in the pensions industry. Aegon head of pensions Kate Smith says this report contains “truly alarming statistics”.
She says: “The state pension is the bedrock of retirement income for many in later life and this is likely to continue to be the case for future generations.
“This is why we have long argued for greater flexibility in when people start claiming their state pension. Allowing people to claim their state pension up to three years early at a reduced rate could make a real difference to many.
“This would take state pensions a small step towards private pension ‘freedoms’ and it would support people who in the future have more flexible multi-stage lives or who are simply unable to remain in the workforce until an ever-increasing state pension age. The higher the state pension the more individuals will struggle to stay in full time work due to a myriad of reasons.”
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