Chancellor Rachel Reeves is set to generate an additional £6 billion annually for the Treasury by pushing through planned increases to the state pension age. This measure, part of a broader effort to address public finances, has sparked concern over the potential impacts on pensioners, particularly those in vulnerable situations. A new report released today outlines the economic consequences of this increase and suggests ways the government can mitigate its effects on the most disadvantaged groups.
A Gradual Increase in the State Pension Age
The government plans to raise the state pension age from 66 to 67 between 2026 and 2028, a change that follows earlier decisions made by successive governments. The rise is intended to accommodate growing life expectancy, which has seen people living longer and healthier lives in their later years. According to the Institute for Fiscal Studies (IFS) and pension provider abrdn, the move could generate an extra £6 billion for the Treasury every year, providing a much-needed boost to public finances.
However, while the policy aims to ensure the sustainability of the state’s finances, it has raised concerns about the financial well-being of certain groups of pensioners who may struggle more than others under these changes.
Poverty Among Pensioners: A Growing Concern
Despite the rise in life expectancy, the report highlights that not all pensioners will benefit equally from these reforms. Poverty rates among those aged over 65 are generally lower than for working-age populations. Yet, certain groups, such as private renters, face growing risks of financial hardship.
The IFS report points to a concerning trend among pensioners who rent privately rather than own their homes. In the 1940s, only 4% of people in their mid-50s were private renters, but by the 1960s, that number had risen to 10%. The researchers noted that this growing segment of the population is particularly vulnerable to poverty in retirement.
Mubin Haq, CEO of abrdn Financial Fairness Trust, commented on the issue:
“Levels of poverty amongst private renter pensioners are three times the rate amongst owner-occupiers, with the number living in the private rented sector set to rise significantly.”
This trend poses significant risks for future retirees, as private renters often face higher rents and less security of tenure. Additionally, housing benefit does not always meet the actual needs of low-income individuals in the private rented sector.
Targeted Support: Proposed Measures
To address these issues, the IFS has outlined several measures that could help offset the negative effects of the pension age increase. One key proposal is to extend additional support to people who are one year below the state pension age and are receiving universal credit. This would cost around £600 million per year and could assist approximately 30,000 households facing financial difficulties.
A second, more targeted proposal would focus on individuals who receive both universal credit and health-related benefits. This approach, which would cost about £200 million annually, would help around 3,000 households avoid poverty. While the targeted measures are more efficient, the IFS warns that these could still place a strain on public finances and have an impact on the labour market.
Heidi Karjalainen, senior research economist at IFS, stated:
“Increasing the state pension age is a key policy to help the long-run sustainability of the public finances in the face of people living longer at older ages. But it does hit those on low incomes who are already not in paid work before the current state pension age particularly hard.”
She stressed the importance of addressing the needs of the most affected groups before these reforms are implemented, warning that failing to provide sufficient support could undermine public confidence in the pension system.
The Housing Crisis and the Impact on Pensioners
Another key issue raised in the report is the housing situation for pensioners, particularly those who rent privately. The IFS suggests that an increase in housing benefits could help mitigate some of the housing-related hardships faced by pensioners in the private rented sector. The proposed policy would allow pensioners to claim housing benefit for an additional room, which could be particularly beneficial for those who need extra space for carers or family members.
The estimated cost of this measure would be £150 million annually, but it could offer much-needed relief to single pensioners and couples living in privately rented accommodation. This idea is particularly relevant as many older people in the UK live alone and rely on family visits for emotional and practical support.
Looking Ahead: A Call for Action
While the proposed pension age rise is intended to help secure the long-term future of public finances, the report argues that the government must act now to prevent further hardship among vulnerable groups. It is clear that increasing the state pension age is not a one-size-fits-all solution, and careful planning will be needed to ensure that no one is left behind.
Heidi Karjalainen added:
“Failing to support the most harmed groups risks undermining public confidence in the system and, in particular, the desirability of increases in the state pension age. There is a good case for using some of the savings resulting from a higher state pension age for targeted enhancements to working-age benefits for the most adversely affected groups in the run-up to state pension age.”
The government’s approach to these reforms will be closely watched in the coming years, with many questioning whether the savings generated by the higher pension age will be used effectively to support those who will be hardest hit by the changes.
As the policy moves forward, it remains to be seen whether the proposed support measures will be adopted and whether they will be sufficient to alleviate the challenges faced by vulnerable pensioners. The need for action is clear, and the clock is ticking as the government prepares to implement these changes.
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This is disgusting attacking the pensioners to full her pocket does she loose her winter allowance no she don’t so why should we loose ours to someone so greedy
If the government were not so incompetent in money management and dipping their grubby hands in the coffers we wouldnt have to be paying tax on top of tax on top of tax and ever increasing retirement age
It’s always the worst off in society that our set to foot the bill of big spending government but surely some of these plans must have been drawn up while labour were in opposition but not declared in there manifesto big number of voters the pensioners same old labour party tax tax everyone and everything like they say someone has to pay for the bills etc etc etc so let’s tax the working classes
Not everyone meets the criteria I am in my sixties struggling to work 12 hour shifts you might not have a parti cular illness, but it gets hard on your body once you pass 60 whoever you are not everyone has a 9 till 5 job