State pension age crucial for lower earners

A study by the Institute for Fiscal Studies finds that raising the state pension age has resulted in more people staying in work – usually the job they were already in – but most still retire early.

Jar with coins in it and a sticker on it saying pensions


The latest increase in the state pension age to 66 has significantly boosted the employment of both men and women, particularly those on lower incomes, although most people have already retired by this point, according to a new study.

The Institute for Fiscal Studies says the rise from 65 to 66 for state pension age which occurred gradually from 2018 to 2020 has led to 55,000 more 65 year olds being in paid work.

Women and the poorest were more likely to stay in work – an additional 7% of men and 9% of women stayed in paid work at age 65 and, in the most deprived fifth of areas, women’s employment rate at age 65 rose by 13 percentage points and men’s by 10 percentage points. In contrast, in the most prosperous areas, female and male employment rates at age 65 rose by just 4 and 5 percentage points respectively.

The IFS says that by mid 2021 the male employment rate at age 65 rose to 42% and the female rate to 31%. Both are the highest seen since at least the mid 1970s and, at least in the case of women, are very likely to be the highest rate ever in the UK.

However, the IFS says more than 90% of 65 year olds (around 640,000 of them) are unlikely to change whether they are in paid work at age 65 purely because of the higher state pension age. It states: “This is in large part because the majority of men and women have already left the labour market before their 65th birthday, while some others would have stayed in paid work even if the state pension age had remained at 65.”

Other key findings include:

  • The increase in employment resulting from the higher state pension age is due to people staying in their current job for longer, rather than to those in work moving to a different employer or those not in paid work returning to the labour market. The increase in employment is predominantly due to increases in full-time work rather than part-time work.
  • Most of those who decide to delay retirement as a result of the latest rise in the state pension age are likely to be financially better off as a result. They would only need to work around 20 hours a week at the National Living Wage to make up for the loss of state pension income and most earn much more than this a week. However, they lose out on the leisure time and other potential benefits of retirement compared with being in work.
  • The unemployed are particularly affected. Instead of receiving a state pension (and potentially retiring), they are continuing to search for work and can only qualify for much less financial support from the working-age benefit system. The IFS estimates that an additional 5,000 65 year olds are unemployed and seeking work as a direct result of the increase in the state pension age from 65 to 66. In addition, 25,000 people report that they are out of work for long-term health reasons, rather than being retired, as a result of the state pension age rising from 65 to 66.

Laurence O’Brien, a Research Economist at IFS and an author of the report, said:There have been striking increases in employment of 65 year olds in recent years as the state pension age rose from 65 to 66. Indeed, employment rates for this age group have reached record highs. However, it is still the case that over 90% of people do not change their employment decision at age 65 purely as a result of the higher state pension age. This is mainly because most people have already left the labour force before turning 65. For most 65 year olds – around 640,000 of them – a higher state pension age simply results in lower income rather than changing their work patterns.”

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