Raising the retirement age is "harming" low-income pensioners, analysts are warning. The state pension age is set to rise from 66 to 67 between 2026 and 2028, delivering £6billion in annual savings for the Government whilst disproportionately affecting low-income households.
A recent report from the Institute for Fiscal Studies (IFS), published today in partnership with the abrdn Financial Fairness Trust, highlights the challenges faced by vulnerable groups approaching retirement age.
The study, part of The Pensions Review, proposes targeted support measures to help those most affected by the pension age increase. The report suggests that additional state support could be implemented at a fraction of the cost savings generated by raising the pension age.
Those already struggling to maintain paid work until the current state pension age will be particularly impacted by the upcoming changes. The IFS has outlined two potential approaches to provide targeted assistance to the most vulnerable groups affected by the reforms.
The first proposed measure would increase universal credit standard allowance by 70 per cent for those one year below state pension age, costing £600million annually.
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New analysis suggests state pension age increases are "harming" Britons GETTY Such an enhancement would help approximately 30,000 households and reduce relative income poverty rates by around five percentage points among the affected age group. The second option would target those on Universal Credit and health-related benefits in the year before reaching pension age, costing £200million a year.
The more focused approach would affect fewer households, helping around 3,000 out of poverty. The IFS notes that while these support measures could be beneficial, they come with trade-offs, including potential reduced work incentives and increased likelihood of benefit claims.
Heidi Karjalainen, Senior Research Economist at IFS and an author of the report, emphasises the necessity of the pension age increase for public finance sustainability.
She said: "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 IFS is calling for state pension savings to be sued to give a Universal Credit boost to older Brionts
PAThe IFS report highlights that this demographic is growing within the retired population. Even those receiving the full new state pension face significant risks, especially if they are single private renters.
Notably, the report highlights that means-tested support for housing costs often fails to cover full rental payments.
To address these challenges, the IFS has modelled the impact of increasing pensioner housing benefit by allowing an additional bedroom allowance.
This change would enable both single pensioners and couples to receive support based on two-bedroom property rates in their local area. The proposed adjustment would cost approximately £150million annually initially, with costs expected to rise as renting becomes more prevalent among retirees.
The reform aims to help pensioners find affordable properties and accommodate visiting family members or address health-related needs.
Mubin Haq, CEO of abrdn Financial Fairness Trust, highlights the severity of the situation facing private renter pensioners.
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One in five people aged 66 or over currently rely on the state pension as their only source of incomeGETTY"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," he said.
Haq points out that while social renters also face hardship, private renters face particular challenges.
"Not only are rents higher, and there is less security of tenure, but state support with housing costs for those on low incomes often fails to meet actual costs or needs and it doesn't tackle the low availability of one-bedroom properties," he explained. He supports the proposal for increased housing benefit allowances.
The CEO suggests that allowing a second bedroom would "better meet the real cost of private renting and provide much-needed space for carers and family to support older people with their increasing health needs".
