With the next state pension age increase imminent, the government must act urgently to support those who struggle to make it to 67 and beyond. This entails getting four things right.
This is the last year that every person in the UK is guaranteed a state pension by age 66. The state pension age will start to increase to 67 from April 2026. And the timeline for further increases – scheduled for 2044 – is currently under review.
It is right that the government keeps the state pension age under periodic review. The Pensions Act 2014 requires this at least every six years. And while life expectancy decreased immediately after the Covid-19 pandemic, it has started to tick up again, and the population is ageing. Raising the state pension age to 67 is forecast to decrease government borrowing by 10.5 billion in 2029-30. And even under the current timeline, government spend on pension-age benefits as a share of GDP will again increase – from 5.9 per cent in 2029-30 to 7 per cent by 2049-50.
But the review must account for the vast health inequalities across the country. Healthy life expectancy in parts of Richmond is 73 for a woman and 71 for a man, but in parts of Blackpool is 55 for a woman and 52 for a man. These inequalities mean that many people will not live long enough to enjoy the pensions that state pension age increases are designed to fund. And that many will leave the labour market well before the state pension age, through no fault of their own.
As people approach pension age, they face significant challenges. Nearly half (45 per cent) of 60–65-year-olds are not working or looking for work. Some in this group are enjoying a comfortable early retirement. But people this age are also more likely to be in poverty than those at any other life stage – driven largely by involuntary exclusion from work. More than half of workless 60–65-year-olds in poverty were experiencing health problems. Our research found that those struggling financially were most likely to say they can’t work, even though they want to work more.
With the next state pension age increase imminent, the government must act urgently to support those who struggle to make it to 67 and beyond. This entails getting four things right.
First, make work healthy and inclusive for people of all ages. Our research found that the most common reasons over-50s drift away from work was that it was physically or mentally too difficult (51 per cent and 28 per cent, respectively). And that over-60s were less likely than other age groups to get workplace support such as flexible work, reasonable adjustments and occupational health advice. The government should support universal access to quality evidence-based occupational health – alongside support and incentives for employers, workers and the state to partner in keeping people well in work.
Second, expand age-inclusive employment support. Older people were significantly less likely to participate in education and training, and nearly a fifth of 50-65-year-olds without work said they were unable to find the support they need to find or keep a job. This is because employers are less likely to invest in developing older workers, and government employment and skills support programmes are not designed with older workers’ needs in mind. The government should improve data collection and reform services to make them more age inclusive. It should also support and incentivise employers to employ those who have been off sick – through rebates for national insurance, sick pay and training budgets.
Third, support the poorest with pensions decisions. 37 per cent of 60–65-year-olds who are in poverty have started drawing an occupational pension. Many are doing so to tide themselves over until the state pension age. But it is often not in their interest to do so, because they could lose their entitlement to out-of-work benefits if they convert their pension to savings or a regular income. The government should work with pension providers to screen and signpost people who are at risk of hardship if they draw their pension early.
Fourth, provide a financial bridge into retirement for those who can’t keep working. People out of work who are approaching retirement have a much lower income than they will have once they retire. Currently, a couple receiving Universal Credit are entitled to £1,367 per month less than they would be if they get a full state pension. And to access these benefits, many are also required to take steps to look for work in the same way as people decades younger. This conditionality affects 28 per cent of universal credit claimants with less than one year until state pension age, compared with 33 per cent of 50 year olds. The government should remove conditionality and raise benefits for over-60s closer to the state pension level, where their circumstances mean they won’t be able to work again.
Without this support package, future state pension age increases will push more people into poverty they can’t recover from in their lifetime.
State pension age increases are a reality that this government is rightly facing up to. But the next state pension age increase can be done much better than under the Conservatives. The government must act now to ensure the transition is fair for everyone.
Sasjkia Otto is a Senior Researcher for the Fabian Society
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