A rising state pension age has created a new and precarious life-stage for some people who feel that they are treated as being too old to work but are too young to retire. The triple-lock on the state pension means that many pensioners have been relatively protected from the risk of poverty, but the same is not the case for those a few years younger. While a rising state pension age has encouraged some to work for longer, many are not receiving enough income through work or other sources, such as social security benefits, to offset the delay of the state pension.

Scale of the problem:

• Pre-retirement poverty is a big, new and growing problem. One quarter of all 60-65 year-olds live in poverty, and there are 800,000 more 60-65 year-olds in poverty in 2022 than there were in 2010.
• A dip in income before state pension age pushes many into poverty. The average income is 16% lower for people aged 60-65 than for those 5 years younger.
• Income inequality is particularly stark in the years immediately before state pension age. 40% of 60-65 year-olds are in households with less than £3,000 in savings, 21% live in a rented home, and 8% have a gross household income of less than £200 per week

Being out of work is a major driver of pre-retirement poverty

There are more people aged 60-64 who are economically inactive (1.7m) than the total number of economically inactive 35-49 year olds (1.6m).

If labour market status for those aged 60 to state pension age holds steady, there could be nearly 770,000 more workless people by 2029. This would bring the total number of people aged 60 to state pension age who aren’t working to 3 million, up from 2.2 million.

What do we do about it?

There are four main areas where action is needed:

1. Improving the quality and sustainability of work
2. Providing targeted and effective employment support and careers advice
3. Address the gap between working age and pensioner benefit systems
4. Ensuring lower earners are supported with private pension saving

Costs and benefits of system reform:

We believe that we need a systemic change in the way we think about work and social security in the years before and after state pension age. Phoenix Insights have previously called for a reinvestment of some of the savings made to the Exchequer any time that the state pension age rises.¹ This should be targeted through direct support or public spending to:  

• Support opportunities for better, longer and healthier working lives for all ages. 
• Mitigate impacts on those most imminently impacted by the transition to a higher state pension age, or most disadvantaged by the current system. 
• Support those facing the greatest barriers to work in the years leading up to state pension age, whether that is for health reasons, redundancy or caring responsibilities.

References

1. An Intergenerational Contract - policy recommendations for the future of the state pension' (Phoenix Insights, 2023)