by Rachel Rickard Straus, money editor at the Daily Mail
The ever-moving goalpost of state pension age looks set to bring more pre-retirees into income poverty. We are constantly reminded of the importance of saving for retirement. But should we be saving for pre-retirement as well?
After all, at least when we hit state pension age most of us should receive a regular, inflation-
linked income for the rest of our lives. It may not be enough on its own, but at least it’s almost
sufficient to cover the basics.
But a period of time is rapidly opening up before then, when the state pension age is out
of reach, but work may be as well.
Those in their early sixties who find themselves trapped in this situation face a terrible choice. They can struggle to get by while waiting for their state pension. They can spend savings or dip into private pensions to help get them through, knowing this may mean they run out of money in later retirement. Or they can try to find employment, even though they may be in poor health and unfit for work.
Millions already face this difficult situation, but recent figures suggest this situation will get worse. The Transition to State Pension Age report by the Work and Pension Committee of MPs found that just 42 per cent of 65-year-
olds and 29 per cent of 66-year-olds are still working, while almost a quarter of the poorest 60-65-year-olds are working while already in frail health.
The last state pension age rise from 65 to 66 – between late 2018 and 2020 – caused the income poverty rate among 65-year-olds to more than double, it found. The impact of the increase to 67 could be even worse, it warned, because those affected will be a year older.
The rise will not hit everyone equally – some may well be physically able to continue to work for longer. For example, those in Richmond upon Thames can expect to live 70 years in good health, while those in Blackpool and Hartlepool just 51.
However, good health is only part of the equation. Reports abound of professionals in their late fifties and early sixties whose roles are made redundant and who want to work but are simply unable to find a new role. Age
discrimination is always an issue. At a time when unemployment is rising, when AI-driven algorithms oversee hiring and when the skillsets demanded by employers are changing so rapidly, ageism is rife.
The Transition to State Pension Age report suggests that the government should increase the level of Universal Credit in the year before state pension age ‘to reduce the poverty and hardship that is otherwise a foreseeable
consequence of government policy’. That would help some, but even if implemented would be unlikely to be a long-term policy. After all, it would cost an estimated £600 million a year – a sum no government would likely commit to when trying to cut the benefit bill. It only proposes covering a year, in any case – many are out of work for far longer than that.
A second report from the Office for Budget Responsibility, revealed that the government could speed up the increase to the state pension age to 68.
It is currently scheduled to rise from 67 to 68 between April 2044 and April 2046.
But Treasury officials told the OBR to model its spending forecasts assuming the increase would be brought forward by at least seven years to 2037.
This means that millions of people who are between the ages of 49 and 55 today would be forced to wait an extra year.
It’s not hard to see how such a move would push up levels of poverty for pre-retirees further still.
There’s much that could and should be done to help prevent this from happening.
Perhaps the most effective would be rethinking the state pension age rises – but every time it’s raised by one year the government saves £10.5 billion a year, so I don’t fancy the chances. If not this, then an alternative reining in of state pension spending would be likely – means testing it or tightening up eligibility.
If the current schedule does go ahead, we’ll need better support for older workers struggling to find employment. Shorter NHS waiting lists so health conditions don’t keep people out of work longer than necessary. Improved efforts to tackle ageism in the workforce. More support for workers to retrain and continually renew
and update their skill sets throughout their working lives.
No doubt a challenging wish list, but one that would pay off many times over.
But the realist in me recognises we need a plan B.
When we plan for retirement, perhaps we should model not for state retirement age, but a time some years earlier.
That’s easier said than done. Saving adequately for retirement is challenging enough. But saving for the years before state pension age may now also be necessary.
