Hatice Cinkaya looks at new research that shows how the most recent increase in State Pension age has hit those affected.
The last change in State Pension age (SPA) was phased in between December 2018 and October 2020. Over that period, the SPA for both men and women increased from 65 to 66. The move was controversial, not least because it followed immediately after the previous increase of women’s SPA from 60 to 65, which started in 2010.
The financial impact of the SPA increase to 66 has recently been examined by the Institute for Fiscal Studies (IFS), which found:
• Predictably, the greatest impact was that, on average, 65-year-olds lost State Pension income worth around £142 per week in 2020/21. Only around 9% of 65-year-olds delayed retirement, and thus maintained earnings, until they reached age 66.
• Once all sources of income (including State Pension and investment income) were considered, the move to age 66 pushed down the average net income of 65-year-olds by £108 per week.
• The reduction in household income had the most significant effect on lower-income households and caused marked increases in income poverty rates among 65-year-olds. The IFS estimates that the reform caused absolute income poverty rates (after accounting for housing costs) among 65-year-olds to climb to 24%, whereas it would have been about 10%, had SPA been unchanged.
• The combination of reduced State Pension payments and the higher direct tax payments from those continuing in work boosted public finances by nearly £5 billion per year.
Another change to SPA is also imminent. Between April 2026 and April 2028, SPA will gradually rise by another year to age 67. If you were born after 5 April 1960, you will be affected. This time around, the amount of pension loss may be greater due to the surge in inflation.
What actions should I take
The Chief Secretary to the Treasury confirmed in June that for April 2023 the “Triple Lock will apply for the State Pension.” Given the current cost-of-living crisis there will be a collective sigh of relief among millions of retirees that their State Pension will be protected from surging inflation.
However with average age of retirement currently running at 65 for men and 64 for women, you should review your retirement plans to make sure that you have sufficient income in place for your needs to account for the rising SPA.
CA8444. Expiry: 08/23