State pension age rise to 67 starts NOW - and many could struggle financially while they wait
The state pension age will start increasing from 66 to 67 this month, saving the Treasury £10billion a year by the end of this parliament.
From this week onward, one month will be added on to the state pension age every two months until April 2028 when everyone will reach pension age at 67.
So, there will be periods when the state pension age is 66 years and between one and 11 months.
The state pension age rise will plunge many older people into poverty and the Government should give financial help to the most vulnerable, say experts.
Extra financial support is needed by over 60s least able to weather these changes, including lower earners, those with health conditions or disabilities and carers, says the Standard Life Centre for the Future of Retirement think-tank.
National charity the Centre for Ageing Better estimates 100,000 people on the cusp of pension age are facing poverty due to waiting longer for their state pension, now worth £12,500 a year if you qualify for the full rate.
It is calling for targeted support, such as allowing those affected by the age rise to apply early for pension credit - means-tested income top-ups currently only available after state pension age - or for the introduction of a new dedicated element in Universal Credit.
Influential think-tank the Institute for Fiscal Studies has also just published a new briefing, which says evidence shows an increased state pension age reduces incomes and increases poverty rates among affected groups.
It notes that these effects are felt more acutely by those already out of work and relying on working-age benefits.
The IFS adds there is a good case for future increases to be accompanied by targeted means-tested support - in part to maintain support for the principle of increasing the state pension age.
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What you need to know about pension age changes
The move to 67 starts this month but the next increase to age 68 is still up in the air.
Officially, it's scheduled to happen between 2044 and 2046, which would affect those born on or after April 1977 – people who are about to turn 49 and younger.
The Government is required by law to review the state pension age every six years, so it has ordered two further state pension reports – one by its in-house actuary and the other by an independent expert – which will look at when the retirement age should rise to 68.
Pension experts are warning that the state pension age might have to rise to 75 or even 80 for younger generations, due to the increasing costs and a falling birth rate.
The trade-offs between the state pension age and annual increases are likely to come under greater scrutiny in future.
Experts say the triple lock tends to benefit better off elderly people who live longer, while raising the state pension age to help fund the higher annual rises disproportionately affects poorer pensioners who have lower life expectancy.
The triple lock means that the state pension increases every year by the highest of inflation. average earnings growth or 2.5 per cent.
The Government has promised to stick to the triple lock for the whole of this parliament.
Meanwhile, Governments have in the past tended to keep the state pension and private pension ages roughly 10 years apart, so any future increases could well continue to happen in tandem.
In April 2028 the minimum pension age for accessing workplace and other private retirement savings is due to go up from 55 to 57.
One in four people aged in early 60s are hard-up
The Standard Life Centre for the Future of Retirement estimates that 250,000 more 60–64-year-olds are living in relative income poverty compared with in 2010, largely because of increases in the state pension age.
Research it carried out among 3,000-plus 60 to 69-year-olds in February explored the impact of the pending rise to 67, and found many who are affected felt pressured, anxious or insecure.
The survey showed 14 per cent who were just below state pension age had gone without food, clothing or heating in the past year, compared to 5 per cent of those aged over 66.
Some 26 per cent of those in their early 60s said they currently struggled to make ends meet on a day-to-day basis, compared with 15 per cent of people above state pension age.
The study also found the impact was not evenly spread, with 21 per cent of people earning less than £25,000 saying the rise in the state pension age will have a major effect on their household finances, compared with 10 per cent of those earning £50,000 or more.
Among people in their early 60s who are not yet retired, 36 per cent say they will need to work for longer because of the rise, while 5 per cent of those who have retired say they plan to go back to work
Some 23 per cent will draw down on savings or a pension, and 8 per cent say they will apply for Universal Credit or other benefits to see them through to the higher state pension age.
'While most people impacted know it is coming, they really don’t like it,' says Patrick Thomson, head of research analysis and policy at the think-tank.
'While some are able to adapt to these changes, others will face real financial hardship. Women are significantly more impacted than men, as are those on lower incomes, who rely more on the state pension.'
He went on: 'We face a growing crisis in which too many people in their 60s are struggling to make ends meet
'Government must set out a clear plan to improve financial security so the most vulnerable are supported before and during retirement.
'We need to focus on helping working carers, those with health conditions, and to support people with lifelong learning and to make career moves that work for them.'
Financial support: There is a 'cliff edge' in means-tested support between working age people and pensioners in their 60s
Working-age benefits 'considerably less generous' than for pensioners
Most of the savings from raising the state pension age come from the direct impact of paying it to fewer people, says the Institute for Fiscal Studies
Additional savings are made via the increased tax revenue from more people remaining in work, and these are very partially offset by higher working-age benefits spending, says the think-tank.
When the state pension was increased from 65 to 66, the income poverty rate of 65-year-olds rose from 10 per cent to 24 per cent, with the effects concentrated amongst those out of paid work, it adds.
The IFS says that for some people deciding when to stop paid work is a voluntary choice, but others may find it very hard to work until state pension age due to health, caring responsibilities or being unable to find a job.
But it points out receiving benefits through the working-age means-tested system is considerably less generous than it is for pensioners - it's 143 per cent higher for a single person just above state pension age than for a similar individual just below it.
'This cliff edge in means-tested support should be made less stark by providing additional means-tested support for people just under the state pension age.' says the newly published IFS briefing.
'In effect, this would mean channelling a small fraction of the public finance savings from a higher state pension age, to target support to groups who are least able to respond by extending their working life.'
Laurence O’Brien, senior research economist at the IFS, adds: ‘It makes sense to increase the state pension age in response to the public finance pressures caused by an ageing population, as the fiscal savings are significant.'
But he says there is a good case for targeted support alongside future increases, adding: 'Any changes should also be communicated to all affected people ahead of time, to give them notice to adjust their plans for retirement.’
Working until state pension age is 'not the norm'
The Government should urgently offer additional financial support to those forced to wait another year before they can claim the state pension, says the Centre for Ageing Better charity.
This would be a 'meagre but essential financial lifeline' for many people, because working up to state pension age is not the norm, says head of employment and skills Elaine Smith.
'Labour market participation declines sharply after 60 and by 66, fewer than one in three people are still in work.
'Ill-health, age discrimination, and caring responsibilities all limit the ability for people to stay in work until state pension age, with women, low-income groups, and people with disabilities most affected.
'The 60-64 age group has the highest rates of poverty of any adult age group after 25.'
She adds: 'Support could be allowing those forced to wait another 12 months for their state pension to access pension credit early, or with a dedicated element in Universal Credit.'
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