Pensions 

State pension age unfairly impacts less educated

State pension age unfairly impacts less educated

Increases to the state pension age are unfair to certain groups of individuals, such as less educated women and manual workers, the International Longevity Centre has warned.

A report from ILC-UK found the state pension age reforms had the potential to worsen social inequalities, especially for women with poor education.

From 2019, the state pension age will increase for men and women to reach 66 by October 2022.

Research from the Extend project into inequalities in relation to extending working lives showed those best equipped to take advantage of this increase tend to be better educated, skilled, and on a higher wage.

Conversely, for disadvantaged workers, extending working lives could lead to involuntary early labour market exit, due to greater health and care needs and caring responsibilities.

Ricky Chan, director at IFS Wealth & Pensions said: "Clearly this is a good example of where government policy has failed those most vulnerable.

"Those less educated are likely to be engaged in more physically demanding jobs, and by forcing them to work longer (35 qualifying years instead of 30), this is likely to have a detrimental impact of their longer term health – they may not have much of a retirement to enjoy.

"This group also would more likely depend on the state pension as a source of retirement income than those with higher education who are likely to have other retirement provisions."

According to the report, Europe has seen significant increases in labour force participation by older workers (aged 55-64), up from 37 per cent to 55 per cent across all member states, largely attributed to the policy of raising the age at which people become eligible for public pensions. 

Some countries have seen larger rises, for example Denmark (56 per cent to 68 per cent) and Germany (37 per cent to 69 per cent).

Research from the Extend project also showed that with the increase of state pension age and the move to contribution-based pension schemes, women with a lower education may lose up to 25 per cent of their monthly pension entitlements under the new system compared to before.  

Nick Bamford, Chartered financial planner at Informed Choice, said: "Where a person depends upon the state pension system for their retirement income they are faced with some real and meaningful challenges.

"These challenges apply to both men and women, although the working pattern for many women probably exacerbates the problems."

He said the state pension was a safety net and not designed to replicate a pre-retirement lifestyle for most people.

"Choice is provided by robust savings and private pension contributions in addition to state pension provision," he said.

"Without those additional savings and investments state pension age effectively becomes the default retirement age. For some the need to continue to work well beyond state pension age is a function of not having saved during their working lifetime," he added.

ILC-UK's report suggested that the UK, when linking pensionable age to average life expectancy, should take into account education and occupation to avoid this social inequality.