The government needs to find ways for people to stay in employment for longer, particularly women, if it plans to raise the state pension further, according to a new report by the Institute of Fiscal Studies (IFS).
This IFS report found previous increases have not been felt equally, with women already out of employment in their late 50s being particularly hard-hit by the rise from 60 to 66 that occurred between 2010 and 2020.
However the ifs found that increasing the female SPA from 60 to 65 lifted the employment rates in this age group by 11 percentage points overall.
The IFS found that this increase was entirely concentrated among the women who were still in paid work at 58; those already out of work by this age did not return to the labour market as the SPA was increased. On average, this group of women are worse off on several dimensions than those in paid work in their late 50s, with lower incomes, having worse health and being more likely to be renters.
The IFS found that despite this fall in income it did not find any evidence that affected women reduced spending on a basket of (predominantly) ‘essential’ items such as food and energy.
It said this could reflect households adjusting spending on other spending categories, with evidence that spending on leisure activities among this group had declined.
The IFS says this report shows that the effectors of increasing the SPA fall harder on those who were already not in paid work by their late 50s – who typically have lower income, worse health and are more likely to be renters.
It says further increases in the SPA could deliver fiscal savings but at a cost likely to be borne by lower-income groups who struggle to be in paid work at older ages.
It says a key focus for policymakers should be to help people remain in and return to paid work at older ages.
In addition it says providing targeted financial support to those approaching pension age through through the benefit system could mitigate the effects of a higher SPA for the hardest-hit groups. This could also help bolster political support for future SPA increases.
Commenting on this report Catherine Foot, director of the Standard Life Centre for the Future of Retirement says: “Ensuring that people nearing state retirement age can remain in work is essential to many people’s retirement incomes as well as the country’s economic growth prospects.
“A combination of longer lives, rising cost pressures and economic uncertainty mean it’s never been more important to ensure workers don’t fall out of employment before they reach state pension age. One quarter of all 60–65-year-olds live in poverty and good quality, satisfying employment can help build financial resilience for later life.
“The government’s growth agenda also relies on retaining older workers. Over 50s leaving the workforce has a major impact on the output of the industrial strategy sectors and an estimated £31bn of output is lost each year from individuals leaving before state pension age. An opportunity exists to reverse this situation for those set to retire in the next 10-15 years.
“It’s never been more important for government, business and industry come together to look for ways to ensure all workers are properly supported with active labour market policies and adult careers support.
“This is particularly true of vulnerable groups such as women, those in poor health or on low incomes aged 50 and over, who are most likely to be pushed into income poverty as state pension age increases. Policies in this area will play a vital role in ensuring people remain in work and out of poverty in the crucial years leading up to accessing their state pension.”
Scottish Widows retirement expert Susan Hope adds: “Saving into a spouse’s pension, also known as third party contributions, is a helpful, but often overlooked, financial planning tool. Not only can it maximise tax relief for those who have used up their allowance, but it can also provide a helping hand to a spouse who hasn’t been able to build up their own retirement savings. This is especially useful for women who need to take time out of work to have children or care for relatives, as it can help to plug gaps in pension contributions while their earning power is limited.”
