According to a report by the Institute for Fiscal Studies (IFS), between 2018 and 2020, the state pension age rose from 65 to 66, meaning 700,000 65-year-olds had to wait another year before they could receive it.
The research, published today (June 20), found that the absolute income poverty rate for 65-year-olds rose by 14 per cent, or nearly 100,000 people, reaching 24 per cent by late 2020.
Responding to the report, AJ Bell's head of retirement policy Tom Selby, said: “For those on very low incomes, increasing the state pension age by just a year can be enough to push people into serious financial turmoil. And while there are ways to replace at least part of this lost income – either via in-work benefits, from your private pension pot or by working longer – the evidence suggests lots of people are either unable or unwilling to go down this road.
“As a result, millions of people saw their state pension income plummet by over £7,000 during the year. For anyone already struggling to make ends meet, missing out on thousands of pounds in pension income will inevitably force them into making painful budgeting choices in order to survive.”
The report found that a small portion of 65 year olds (9 per cent) chose to stay in their job or retire later, however, most of the increase in income poverty was among people not in paid work.
Those without a university degree, in rented accommodation and single people were hardest hit, with the income poverty rate rising 21 per cent, 22 per cent, and 24 per cent, respectively.
With lower state benefits and higher tax revenues from employment, the increase in state pension age from 65 to 66 increased the public finances by £4.9bn per year, equivalent to around 0.25 per cent of national income, or 5 per cent of annual government spending on state pensions.
IFS research economist Laurence O’Brien, said: “Increasing the state pension age is a coherent government response to increases in life expectancy at older ages and the resulting pressures on the public finances. But it does weaken household budgets.”
Aegon's head of pensions Kate Smith called for greater flexibility as to when people can start claiming their state pension.
“These are truly alarming statistics and could be a taste of more hardship to come," she said. "The state pension is the bedrock of retirement income for many in later life and this is likely to continue to be the case for future generations.
“Allowing people to claim their state pension up to three years early at a reduced rate could make a real difference to many. This would take state pensions a small step towards private pension ‘freedoms’ and it would support people who in the future have more flexible multi-stage lives or who are simply unable to remain in the workforce until an ever-increasing state pension age. The higher the state pension the more individuals will struggle to stay in full time work due to a myriad of reasons.”
In addition, AJ Bell’s Selby warned that younger generations need to prepare for a world where the state provides less in pensions.
“Rising average life expectancy and ballooning state pension costs mean the state pension age is already scheduled to increase to 67 by 2028 and 68 by 2046. Indeed, a previous review recommended accelerating the rise to 68 by seven years – although this has not yet been written into legislation,” he said.
An independent review of the state pension age is currently ongoing for the DWP, led by Baroness Neville-Rolfe.
A DWP 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.”
