More 65-year-olds living in poverty as state pension age rose to 66, says IFS

Around one in seven (14%) 65-year-olds were in income poverty in late 2020 as a direct consequence of the state pension age rising from 65 to 66, according to the Institute for Fiscal Studies (IFS).

Between late 2018 and late 2020, the state pension age for men and women rose from 65 to 66, leaving around 700,000 65-year-olds in the UK waiting another year before they could receive a state pension.

The key impact of this was that 65-year-olds missed out on state pension income of £142 per week on average, the think tank said.

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 according to the findings, funded by charitable foundation the Centre For Ageing Better.

The report said: “The reform caused absolute income poverty rates (after accounting for housing costs) among 65-year-olds to climb to 24%, some 14 percentage points higher than – or more than double – the 10% that we estimate it would have been had the state pension age remained at 65.”

Laurence O’Brien, a research economist at IFS and an author of the report, said: “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.”

The IFS said that due to increasing the state pension age from 65 to 66, the income poverty rate of single people aged 65 rose by 22 percentage points, from 16% to 38% and the rate for 65-year-old renters rose by 24 percentage points, from 22% to 46%.

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 £4.9 billion per year, equivalent to around a quarter of 1% of national income, or 5% of annual government spending on state pensions, the IFS said.

The state pension age is regularly reviewed.

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 10 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.”

A Department for Work and Pensions spokesperson said: “We know that older workers, including those approaching state pension age, are a huge asset to our economy while for those who can’t work, we provide a strong welfare safety net, which includes Universal Credit.

“We also understand that people are struggling with rising prices which is why we have acted to protect millions of the most vulnerable through at least £1,200 of direct payments this year, and there is a wealth of additional financial support available when people reach state pension age, including Pension Credit – which unlocks an additional £650 cost of living payment for those currently claiming it – and Winter Fuel Payments.”