Poorest pensioners have incomes 70% higher than worst-off households nearing retirement

25 June 2019

While state pensions have been increasing in recent years, for those nearing retirement there is a growing poverty gap as the state pension age keeps increasing.

New research from the Institute of Fiscal Studies (IFS) has revealed that the incomes of poorer households just below state pension age have fallen far behind those of poorer pensioners over the past 20 years.

In 1999 the poorest fifth of the population who were within five years above the state pension age had an average income 17% higher than those who were within five years below the state pension age.

By 2017 this gap had grown, with the poorest fifth above the state pension age having an average income 70% higher than those just below.

The IFS says the growing poverty gap between pensioners and those nearing retirement is because government policy has been more generous to low income individuals who have reached the state pension age compared to those just below it.

Under the triple-lock, state pensions increase every year in line with wages, earnings growth or 2.5%, depending on which is highest. This means pensioners can currently claim £168.60 a week.

The problem is likely to be exacerbated by the rising age of the state pension.

The state pension age for women was raised in November 2019 to 65 – the same as men – for the first time.

It has been steadily rising from 60 since 2011 and in 2020 the age for both sexes will rise to 66. The state pension age is then due to increase to 67 by 2028 and 68 by 2039.

Carl Emmerson, deputy director of the IFS, says: “Pushing up the state pension age as longevity increases makes sense.

“But there is a large – and growing – difference in support that the state makes available to low income households who are just below the state pension age and those who are just above it. Such a big gap may look problematic in the context of a rising state pension age.”

The increase in age to the state pension for women has drawn widespread criticism.

Campaign groups such as BackTo60 and Women Against State Pension Inequality (WASPI) argue that many women born in the 1950s were not warned of the changes and as a result have suffered financial hardship.

Some women stopped working after expecting to receive a pension, but the changes have left them with little time to make alternative plans.

The research also found that middle class people aged 60 to 74 are earning more than double the amount this age group did 20 years ago.

The money earned by middle-income 60 to 74-year-olds has risen by 160% for this group as a whole since 1997.

Middle-income 60 to 74-year-olds have seen total incomes – which includes pensions and savings – rise more than 60% higher than the similar group in the mid-1990s.

The IFS says that employment rates for older men and women are likely to continue to rise as life expectancy increases and subsequent generations have less generous pensions to rely on.

Mr Emmerson says: “The incomes of middle income 60 to 74-year-olds are now much higher than they were in the mid-1990s as private pensions and earnings have grown. Future generations may actually end up with lower private pensions.

“But there is much capacity for employment rates of older individuals to rise further: for example employment rates of men aged 60 to 64, which have been increasing since the mid-1990s, are still well below the rates seen in the 1970s when life expectancy was much lower and health less good.”

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