Analysts are warning that the increase in retirement age is “harming” low-income pensioners. The state pension age is due to rise from 66 to 67 between 2026 and 2028, this would result in annual savings of £6 billion for the Government but researchers believe that this could be particularly problematic for households that are struggling with the cost of living.
A recent report by the Institute for Fiscal Studies (IFS), released yesterday in collaboration with the abrdn Financial Fairness Trust, highlights the challenges faced by vulnerable groups nearing retirement age. The study, part of The Pensions Review, suggests targeted support measures to assist those most affected by the pension age increase.
The report indicates that additional state support could be implemented at a fraction of the cost savings generated by raising the pension age. Those already finding it difficult to maintain paid work until the current state pension age will be particularly affected by the forthcoming changes.
Analysts are warning that the increase in retirement age is “harming” low-income pensioners
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Heidi Karjalainen, a Senior Research Economist at IFS and co-author of the report, underscored the crucial role of the state pension age increase in maintaining public finance sustainability. She highlighted that not supporting the most impacted groups could erode public trust in the system and the acceptability of rising the state pension age.
Karjalainen remarked, “Failing to support the most harmed groups risks undermining public confidence in the system and, in particular, the desirability of increases in the state pension age. There is a good case for using some of the savings resulting from a higher state pension age for targeted enhancements to working-age benefits for the most adversely affected groups in the run-up to state pension age.”
The IFS has proposed two potential strategies to provide targeted assistance to the most vulnerable groups impacted by the reforms. The first suggested measure would raise the universal credit standard allowance by 70 per cent for those one year below state pension age, costing £600 million annually.
This option focuses on a broader group and could decrease poverty rates by approximately five percentage points among the affected demographic. Alternatively, the second, more targeted method would concentrate on individuals on Universal Credit and health-related benefits in the year before they reach pension age and would cost an estimated £200 million annually. This approach is expected to assist roughly 3,000 households out of poverty.
The report detailed how this segment of the population is becoming a larger part of the retired community and noted the challenges faced even by those who receive the full new state pension, especially single private renters. It also underscored how means-tested support often does not fully cover rental expenses.
The IFS has proposed a solution to these issues by modelling the impact of increasing the housing benefit for pensioners, allowing for an additional bedroom allowance. This would mean that both single pensioners and couples could receive support based on two-bedroom property rates in their local area.
The suggested change would initially cost around £150 million per year, with costs predicted to increase as more retirees turn to renting. The aim of this reform is to assist pensioners in finding affordable properties and provide space for visiting family or health-related requirements.