A quarter of a million more 60 to 64-year-olds are now in relative income poverty compared to 2010 when the state pension age began rising, according to new analysis, provoking hard questions for the government about the impact of further increases.
There has been a marked jump in financial insecurity among people in their early 60s as the state pension age has been pushed higher over the past 15 years, the report from the Standard Life Centre for the Future of Retirement found.
The poverty rate for 60 to 64-year-olds has increased from 16% in 2009/10 to 22% in 2023/24, according to the research.
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Meanwhile, when the state pension age rose from 65 to 66 between December 2018 and October 2020, the percentage of 65-year-olds in income poverty more than doubled from 10% to 24%.
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Further raises are likely to have the same impact unless changes are made, the report’s authors said.
Patrick Thomson, head of research analysis and policy at the Standard Life Centre for the Future of Retirement, said: “For the first 60 years of its existence the state pension age stayed the same. Since 2010 it has been rising in more years than not, and a growing number of people are falling into poverty as they wait for a higher state pension age.
“Next year we will begin to see another rise from 66 to 67 which will save £10 billion a year but have knock-on costs and consequences for poverty levels.”
We look at how much you need for a comfortable retirement in a separate article.
State pension age will rise from April
The next rise in state pension age kicks in from April 2026, gradually reaching 67 for both men and women by 2028.
This relatively fast increase in state pension age since 2010 has happened at the same time as big demographic change. There are now 8 million people in the UK in their 60s, up from 6.7 million in 2010, and this is expected to peak at 8.7 million in 2031, according to the report’s analysis.
Within this large cohort, pre-retirement poverty is predicted to rise further as the state pension age begins to increase again next year. Thomson said: “The change will come at a huge cost to some.”
He added: “Our research with the public shows that most people accept that the state pension age may need to rise over time, but this needs to be done in a way that is seen as fair between generations.
“Any further increases must be matched by clear policies to help people stay in good work for longer and protect those who cannot,” he said, warning, otherwise, more people could face a long period of financial insecurity before receiving the state pension.
State pension age hikes leave some people working for longer
Many people have responded to a later state pension age by working for longer.
The report finds the employment rate for 64-year-olds has risen from 34% in 2013 to 54% today. But this is largely among people who were already in work.
Those who leave the labour market in their 50s and early 60s remain unlikely to return, increasing their risk of low income, the report found.
Meanwhile latest figures out today showed UK unemployment has hit its highest level in almost five years.
Will the state pension age go higher?
The government is currently engaged in a State Pension Age Review, to gauge any future increases in the age at which people can receive the benefit.
It has also revived the Pensions Commission in a bid to tackle the “retirement crisis that risks tomorrow's pensioners being poorer than today's”. It warns that too many working-age adults (45%) save nothing at all into a pension.
But increasing the state pension age when people are already undersaving for retirement will do little to improve pensioner poverty.
Standard Life is calling on the government to redirect some of the savings from the state pension age rises into policies focused on helping people to work for longer, allowing them to save more for retirement.
The report also recommends providing better support to people to help them make good decisions when it’s time to access their pension savings. In combination these policies could help both individuals and contribute higher economic activity and tax revenue, the report said.
Thomson said: “We know that there is a good chance that 66 year olds will see their rates of poverty double over the next few years unless we take action.
“We will spend £10 billion less on them each year [because of the state pension age rises], and could target some of that to help people to stay in good work in their 60s and to cushion the impact on those most at risk.
“The state pension matters to people, and we need to build public confidence in a fair system for today and for tomorrow”.
Could you benefit from a pension review?
Relying on the state pension alone is not typically enough to fund a retirement.
Outside increasingly rare defined benefit pensions, private pensions like a SIPP or workplace pension remain the most tax-efficient way to build a bigger retirement pot, despite constant tweaks by successive governments. Contributions attract tax relief at your marginal rate, and investments grow free from income tax and capital gains tax – though withdrawals are taxable.
Basic-rate taxpayers receive 20% relief on contributions, rising to 40% for the higher-rate, and 45% for the additional-rate, making pensions a powerful tool to turbocharge retirement savings.
An annual pension review can be the wake-up call needed to get retirement plans on track, whether you do it yourself or seek professional advice.
Take full advantage of employer perks such as higher employer matching or salary sacrifice schemes, which remain highly tax-efficient but the amount that is exempt from National Insurance contributions will be capped at £2,000 from April 2029.
Don’t forget ‘carry forward’ rules to use unused pension allowances from the past three tax years. This means a large bonus or inheritance, for example, might allow you to make contributions well above the £60,000 annual allowance – but only if you have relevant earnings that at least cover the total pension contribution.
If all carry forward allowances were available, the highest earners could potentially pay up to £220,000 into a pension this tax year.
Finally, review your investment mix and risk level to ensure they still suit your goals.
