Next year, the government is set to increase the state pension age—a move expected to save £6 billion annually. But what if this drastic change could be used to directly support the very people it will hurt the most?
A report by the Institute for Fiscal Studies (IFS) and the Financial Fairness Trust, part of The Pensions Review, reveals the potential for targeted interventions that could alleviate the financial burden on the most vulnerable pensioners. But there’s a catch: without careful consideration, the policy risks deepening inequality.
Strategies to Mitigate Retirement Impact: Cost and Effectiveness Analysis
The report lays out two distinct approaches to offset the blow for those nearing retirement:
- Universal Credit Increase: A 70% hike in the UC standard allowance could support 30,000 of the lowest-income households, costing around £600 million.
- Health-Related Benefit Tied Support: For those claiming both UC and health-related benefits, a more targeted approach could cost £200 million but help only 3,000 households.
Both measures, though effective, are a fraction of the £6 billion in savings projected by the Treasury. But how much will it cost to implement these targeted benefits? And is it enough to make a meaningful difference?
It’s not all smooth sailing. The IFS report also warns of a paradox: these measures could inadvertently discourage recipients from seeking employment or encourage them to claim health benefits even if they don’t need them.
Heidi Karjalainen, Senior Research Economist at the IFS, states the unavoidable reality that the increase in the state pension age is unavoidable to maintain the benefit’s sustainability.
However, without the right support for those hardest hit, public confidence in the pension system could be at risk. She advocates for a portion of the savings to be reinvested into
“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.”
Housing Costs: A Silent Crisis for Private Renters
The report doesn’t just focus on income. It also addresses the housing crisis faced by private renter pensioners—people whose financial stability is often eroded by unaffordable rents and insecure tenancies. Even those receiving the full new state pension of £221.20 per week face significant hardship, especially as housing costs continue to rise.
- Private renter pensioners experience poverty at three times the rate of their owner-occupier counterparts.
- Rent levels are higher, tenure is less secure, and state housing benefits often fail to meet the reality of housing costs.
Mubin Haq, CEO of abrdn Financial Fairness Trust, warns:
“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. Hardship is also high amongst social renters; however, the situation for private renter pensioners is particularly worrying.”
The solution? A reform in pensioner housing benefits—specifically, allowing pensioners to claim for an additional bedroom under their benefit coverage. This would provide the space many need, whether for visiting family or for simply making their homes more liveable as their health needs increase.
Initial cost: £150 million per year—a small price to pay for a long-term solution.
Reinvesting for Impact: Balancing Fiscal Responsibility and Social Welfare
The increase in the state pension age is inevitable. But does it have to be a zero-sum game, where savings only benefit the government? Or can a strategic portion of those savings be reinvested to reduce poverty, ease housing insecurity, and support a more sustainable retirement for future generations?
If the government is willing to rethink how it allocates these savings, there is a real opportunity to balance the need for fiscal responsibility with the moral imperative of caring for the most vulnerable. The question is whether they will act before it’s too late.
Got a reaction? Share your thoughts in the comments
Enjoyed this article? Subscribe to our free Newsletter for captivating articles, exclusive content, and the latest news.
