An adequate income in later life — how do we achieve this for people who rely on the State Pension?

In this long-read, Independent Age Policy Officer Michelle Ravenor digs into the State Pension system and shares insight from new research into income adequacy and financial hardship.

We are also researching income maximisation for people in later life — read more about our income maximisation work here.

Independent Age is the national charity focused on tackling financial hardship in later life. We use the insight from our advice services and grants partnerships to highlight the issues older people in poverty experience, and campaign for change.

It’s essential that tackling poverty in later life is a key priority for the new UK Government. A good starting point may be to focus on a group often at risk of financial hardship and poverty — those who rely completely or mostly on the State Pension.

We are researching the adequacy of older people’s incomes, asking — is their income enough for them to meet their needs? If not, what reforms can boost their incomes to this basic level? We shared a little about this in a blog earlier in the year.

We are hugely grateful to the older people living on a low income who took the time to complete our recent survey¹, sharing their often difficult personal experiences. In this blog we share extracts of these stories and address some of the myths and misunderstandings around the State Pension and poverty in older age. We also set out what we would like to see the new UK Government do to ensure everyone has an adequate income in later life, as it makes plans for a pensions review.

Real poverty, despite an improved State Pension

The new State Pension (nSP) is paid to people who reached State Pension age from April 2016 or later — this includes men who are roughly 73 and younger, and women who are roughly 71 and younger. Compared to the pre-2016 State Pension, the nSP is a higher amount, which has done much to improve many people’s incomes and achieve greater equality between men and women. Over time, more ‘pensioners’ will receive the nSP.

The relatively high annual increases to the State Pension through the triple lock receive a lot of attention which can lead to a public perception that poverty in later life is no longer an issue.

However, it has not gone away. In our report ‘The Hidden Two Million’, we heard from people often missing in these public discussions and debates who are experiencing significant hardship in later life. And again in our recent survey, people generously shared how difficult, stressful and exhausting that reality can be and the sacrifices they are forced to make.

“I can’t afford heating, and survived in a temperature of average 10 degrees the last two winters.” Judith, 78

“[I use] food banks. Never had heating on. No mobile phone. I carry buckets of washing up water upstairs to flush my toilet. I only shower once a week. I eat out of date food on a very, very regular basis, sometimes scraping the mould off.” Anonymous, 66–70

“I do scrimp on using gas & electric. It makes me feel sad that it comes to this. I’m sometimes cold & uncomfortable.” Sharon, 67

The State Pension — facts, figures and insight from our survey

• 1.9 million older people (16%) are living in poverty — up from 1.6 million in 2012.²
• One in eight people (13%) above State Pension age (SPa) have no income other than the State Pension and state entitlements. This rises to one in five (20%) among single pensioners.³ There can be many reasons why someone reaches retirement with only the State Pension, as people within our survey shared with us –

“Brought up 5 children, so only worked part time, so never earned enough to afford to pay for a private pension.” Pauline, 75

“Not enough spare income when raising children, then had to work part time from age 53 to 63 so I was around to support elderly parents. Still caring for one parent now we are retired” Anonymous, 66–70

“I have had uncontrolled epilepsy all my adult life and have been unable to work. I have l lived on state benefits since I was 21.” Anonymous, 71–75

• The State Pension is something that is often seen as ‘universal’. And while this is true in some ways — it is designed to be for everyone in retirement, subject to contributions — it is not accurate to say that everyone receives it equally.
• The full amount for the new State Pension (in 2024/25) is £221.20 per week, but a large majority of people over SPa — 73%, 9.3 million people — receive the pre-2016 or ‘old’ State Pension , not the nSP. The old SP is made up of the basic state pension, and for some includes other payments (depending on eligibility). We use ‘old’ or ‘pre-2016’ SP interchangeably here.
• Among people getting the old SP there is more variety in the amount they receive than among people on the nSP. Only 25% of those on the old SP receive £200–250 pw, compared with 51% of those on the nSP.⁴
• Poverty levels among the ‘oldest’ older people (who are on old SP) are particularly high — 21% of people aged 85+ are in poverty, compared to 15% for those age 70–74.⁵ This is one of the highest poverty rates for all adult age groups, second only to those aged 60–64.

“It is impossible to live a fulfilling life and enjoy retirement on a basic pension if born before 1955. My savings are just going down and down. My family help me. I could not manage without them.” Anonymous, 76–80

“I fail to understand this system, it costs us all the same amount to live but because of birth 6 years after me some of my friends receive higher pensions.” Carol, 78

• For those whose State Pension is less than the full nSP, Pension Credit may be available (subject to means testing) to top up their incomes to just below the nSP amount (about £218 per week for single people and £333 per week for couples). It can also ‘passport’ people to a number of other entitlements, such as Housing Benefit or Council Tax Reduction. But the take-up of all state entitlements is far from full, with the latest figures for Pension Credit showing only 63% of eligible people are receiving it.
• People whose incomes are just above the Pension Credit threshold come up against an eligibility ‘cliff edge’. Many continue to struggle on a low income without extra financial support, exposed to sharp rises in fuel and food prices. Many people in our survey shared this experience with us.
• Material deprivation is the measure of a household’s inability to afford key essentials. This is rising for older people — from 700,000 people in 2019/20 to 1 million people in 2022/23. This is indicative of the increasing difficulty people are having in meeting their day to day needs.⁶

“The criteria for claiming Pension Credit should be made available to anybody only receiving a State Pension for income. Being £2.80 over isn’t good enough. I’ve missed out on the £300 pay-outs and warm home scheme.” Sharon, 67

“I have a works pension that takes me above Pension Credit, yet I cannot afford dental treatment or new glasses. These sort of items are now luxuries I have to work to pay for, life feels like a struggle.” Anonymous, 66–70

“I think many people are trapped in my situation, due to my small private pension, I’m just above the threshold for Pension Credit, which opens the door to other benefits, meaning I am worse off than someone who didn’t pay into a private pension.” Julie, 68

“My husband and I have worked all our lives and cannot claim Pension Credit, etc., due to my small private pension. People who claim Pension Credit have a lot of additional help that we have to pay for such as dental treatment and glasses which are really expensive but necessary.” Anonymous, 66–70

The State Pension for different groups

The likelihood of having a low income is higher for certain groups. For example, the poverty rate among older women (17%) is higher than for older men (15%).

For women, the structural disadvantages that they faced throughout their working lives continue to affect them in retirement, due to the impact that this has had on their income in later life. These include expectations around caring responsibilities, time out of the labour market, part-time or precarious work, lower earnings, State Pension policies based on the assumption they would be supported by a husband’s pension, and rapid changes to the State Pension age. The gender gap within private pensions is significant. For example, for people aged 80–84, almost one in three women have no private or occupational pension income, compared to one in six men.⁷

The nSP has helped equalize men and women’s State Pension income, reducing the gender (state) pension gap to 5% for those getting it.⁸ For those receiving the old SP however (i.e. the majority of current ‘pensioners’) the gender gap is significant. As of May 2023, women on the pre-2016 SP received around £170 per week on average, compared to around £199 for men — 15% lower. There are over 5.4 million older women receiving the pre-2016 SP, and on average they receive the lowest weekly payments compared with the other groups (Fig.1.).⁹

The reasons why women receive less pre-2016 SP than men the same age are varied, as shown by the responses to our survey:

“I didn’t realise that opting to pay the married woman’s rate meant I missed out on my pension. I subsequently divorced and as a single parent there was never enough money to put into a pension and keep a roof over our heads” Anonymous, 76–80

“I had to work part time from about age 40 due to physical disability so didn’t build up much extra state pension and being a woman not offered a private pension.” Anonymous, 76–80

“When we married and had children I gave up my job to look after the children. I didn’t go back to work until the eldest left school. We struggled at times but managed to pay off the mortgage with just one wage coming in. When I went back to work it was just part time so didn’t earn enough to pay NI… I was not offered the chance to make up the NI payments.” Anonymous, 76–80

Single people also face challenges, with 22% of single older people in poverty, compared to 13% of couples.¹⁰ Some countries, such as the Netherlands and Denmark, recognise the additional financial challenges faced by single people by having higher State Pension payments for them.¹¹

“Born in 1950s, started work in 1970s: State pension WAS the available pension. Subsequently never earned enough to be able to afford to join a private/ workplace pension. Chose to remain single so struggled on a woman’s salary only to pay bills, run car, and rent/mortgage so nothing to spare for pension or savings.” Anonymous, 66–70

Poverty rates are also higher for people from minoritised ethnic communities — 16% of White people aged 65+ live in poverty, compared with 26% of older people of Black/ African/Caribbean/Black British backgrounds.¹²

And of course, many people will belong to multiple groups — single women, for example — which can compound their risk of experiencing financial hardship or receiving a comparatively lower income in later life, as do life events such as divorce.¹³ We would welcome the inclusion of an intersectional approach to the issue of income adequacy within the Government’s planned pensions review — with consideration given as to why the incomes for some groups of pensioners are inadequate and what can be done to address this.

The State Pension, ‘the poverty line’ and living standards

The latest government statistics (for 2022/23) appear to show a small fall in pensioner poverty compared to pre-pandemic levels. However, as we shared at the time, this is due in part to the increased but temporary support given to lower income pensioners through the Cost of Living Support scheme. The IFS recently produced analysis emphasising that the rate of income poverty may mask the true financial difficulties faced by poorer pensioners. That is because it does not account for the fact that poorer households are much more vulnerable to increased gas, electricity and food prices (thus experiencing a higher than average rate of inflation).

The analysis also shows that rates of material deprivation are rising.¹⁴ These indicate the day-to-day practical struggles we hear about on our helpline and in our recent survey. So, it is important to consider pensioner incomes in the context of accepted measures of living standards. There are a number of these and two we have looked at are the Minimum Income Standard and the PLSA’s Retirement Living Standards.

The Minimum Income Standard (MIS) shows what households need to spend to reach an acceptable standard of living, and was designed based on the views of members of the public.¹⁵ In 2021, a full nSP alone gave a single person an income representing 95% of MIS.

However, the very high inflation of early 2022 coupled with the below-inflation uprating of the State Pension in April 2022 meant that what was needed for a minimum acceptable standard of living moved further away from the level of the State Pension. In 2022, a full nSP meant a single person reached only 82% of MIS, falling further to 80% in 2023. The gap between State Pension levels (full nSP, full Pension Credit or full basic SP) and the MIS in 2023 was significant (Fig.2.).

The Pensions and Lifetime Savings Association (PLSA)¹⁶ provide measures of Retirement Living Standards. These show what a range of common goods and services would cost in later life for three different levels. The full nSP in 2023/24 fell short of the ‘minimum’ standard by almost £4,000 — and this year it continues to fall short by almost £3,000 (Fig.2.). While these measures are helpful, they are ‘broad brush’ and may not account for the particular needs and financial situations of individual households.¹⁷

Savings and housing — a mixed picture

Savings and housing in later life are other areas where the public perception that all is well doesn’t always match reality.

In 2022, 11% of pensioners — 1.3 million people — had no savings at all. A further 4 million older people had less than £3,000 in savings.¹⁸ While £3,000 may seem like a lot, older people face particular pressures and priorities. For example, the average cost of a ‘basic’ funeral is £4,141, and the ‘cost of dying’ is estimated to be almost £10,000.¹⁹

Among those who completed our survey and said they are struggling to manage financially, the most common use of their savings is to supplement their income regularly. So some people with (small) amounts put away still struggle, and can exhaust their savings just to pay for the essentials.

“I have used my savings so that I could live, and now, I have nothing left.” Anonymous, 66–70

When it comes to housing, the challenges faced by older renters on low incomes are rarely part of the conversation about renting and we have been pushing to change this.

We know that many older renters are left with no choice but to move away from their communities and families to places where rents are cheaper. Affordability is even more of a challenge for older renters on a single income.²⁰ Through our work with UK Collaborative Centre for Housing Evidence (CaCHE) in our ‘Keys to the Future’ report, we are concerned about the future. CaCHE’s modelling projected that as a result of increased private renting, poverty could increase among older people from 17% in 2022 to 23% in 2040. This means the number of people in poverty in later life across the UK could increase from 2.1 million people to 3.9 million.

Right now the affordability of rent is a major issue. Only 79% of older people entitled to Housing Benefit received it in 2022²¹ — and the amount received is often not enough to meet people’s housing costs.

“Unable to pay all essential bills, have to go without heating until absolutely necessary, private renting means landlord can either raise rent at will/sell property, constant rises in food prices means can only buy essentials and look for cheapest options” Anonymous, 66–70 (private renter)

“It makes me afraid. My rent goes up every year and I’m worried I may not be able to cope.” Jane, 68 (private renter)

While private renters are at higher risk of poverty,²² owning a home does not protect everyone from financial hardship. 12% of homeowners aged 65+ are in poverty.²³ In our survey, we heard from many homeowners struggling to manage, often very scared of unexpected housing costs or repairs.

“[I] rarely have heating on. Have no money put aside for emergencies. Constant juggling act to pay bills. Cannot afford maintenance on the home I live in.” Anne, 70 (homeowner)

“No essential repairs to my home. Use limited water as on spring water pumped in by electric pump and have to keep costs down. Once a month bath and use washing water and bath water to flush toilet to keep costs down. Use limited lighting in the house. Burn scavenged wood for heating on open fire and all burnable rubbish. No other heating in house.” Melanie, 71 (homeowner)

“Only able to buy enough coal to heat house 4 hours a day each evening in winter… struggle to run/service/tax car (essential as no public transport here); wash in cold water in summer as can’t afford to repair immersion heater.” Anonymous, 66–70 (homeowner)

The rising State Pension age

The State Pension age (SPa) has been rising and is due to rise again to 67 in the next couple of years. This concerns us, as IFS analysis shows that SPa rises have had a direct impact on increasing poverty rates for those ‘left behind’.²⁴

When the UK Government uses SPa as a policy ‘lever’ to manage rising levels of State Pension spending, it means people have to decide if they can work for longer. Many can’t — especially those on the lowest incomes who are the least likely to enjoy a long, healthy old age.²⁵

The next independent review of SPa is due by 2029. We want the UK Government to understand how SPa rises impact the poorest in society, and develop a clear plan for how to mitigate these impacts. We think that changes to the working age benefit system to better support people approaching SPa who have long term barriers to work would be a good place to start — this is something the Fabian Society is arguing for, and we support their recommendations.

We also think action is needed to bring greater fairness and support to mixed-age couples in financial hardship, i.e. couples where one partner is above and the other below SPa. These couples cannot access financial support from pensioner benefits like Pension Credit until both members reach SPa. We hear through our helpline that this can result in a situation where the older partner — who may be into their 70s — is languishing on a very low income, despite being well above SPa. This is not as small a group as you might think; in 27% of couples where the woman is 65–74, there is a 5+ year age gap between them and their partner.

Future pensioners

Although our focus at Independent Age is supporting current pensioners, we are also concerned about poverty among future generations of older people. Especially given that 60–65 year olds have the highest poverty rate of any adult age group, at 22%.²⁶

‘Generation X’ — those born between 1965 and 1980 — face a unique set of challenges. According to the International Longevity Centre, 30% of people in this group are at risk of their pension providing a minimum (or lower than minimum) standard of living in retirement, as measured by the PLSA Retirement Living Standard.²⁷ 59% of this group expect to have no additional income beyond the State Pension to support them in retirement.²⁸

Increasingly the issue of adequacy for future pensioners is part of the wider discission, and solutions to address the issue are welcome. Great progress has been made for example with the Living Pension Standard,²⁹ supporting employers to give employees a better chance of achieving a good income in later life. We also support recommendations to increase workplace pension savings through increases to Automatic Enrolment - which Phoenix Insights suggests a gradual timeline towards.³⁰ But as well as looking ahead to prevent future problems, it’s essential the UK Government explores policy changes needed by the two million older people are living in poverty right now.

Addressing income adequacy in later life

“I often just have soup for dinner as there is nothing else. I have had to attend a food bank just to be able to get something to eat. I feel like it is a real struggle and I have no way of getting more money, so it is going to be a real struggle for the rest of my life.” Anonymous, age 66–70

Pensioner poverty peaked in the late 1990s, reaching 29% in 1997. The UK Government then made promises to ‘end’ poverty in childhood and in later life, and there was a political consensus that poverty was unacceptable.³¹ This led to reform — not least the introduction of Pension Credit — and pensioner poverty fell to 13% by 2012.

But now pensioner poverty and material deprivation are on the rise and could continue to increase, particularly as more people rent throughout retirement. We are troubled by the persistent low take-up of income related financial entitlements such as Pension Credit, Housing Benefit and Council Tax Reduction which can lift so many out of financial hardship. We’re also concerned about the fact that many people who are outside of eligibility for these benefits are living difficult later lives, struggling to meet their day to day costs.

And, most recently, we are concerned about changes to the Winter Fuel Payment system, that could mean up to 1.2 million older people on low incomes miss out on vital financial support.

Given this situation for current and future older people, the need for reform is clear.

While there is no quick fix, the UK Government now has a huge opportunity to identify the changes that would most help tackle poverty across all ages, including for people in later life. Cross-party consensus will be essential to ensure long lasting change for everyone facing financial hardship in later life.

We welcome the commitment from the UK Government to review the current state of the pensions and retirement savings landscape. We signed an open letter calling for a review of pensions adequacy in this new Parliament, highlighting the need to “urgently bridge the retirement income gap for the current and future generations”. We look forward to working with the new UK Government and MPs across parliament as these plans develop.

As part of their review in this space, we believe the UK Government should consider, and develop solutions to, the following issues:

• Include current pensioners in scope — too often ignored and excluded from pensions adequacy debates.
• Agree what is an adequate income in later life that ensures people meet their needs and live free of insecurity and stress, informed by measures of poverty and living standards.
• If this agreed level is higher than the current new State Pension, develop a clear plan for how current pensioners with a lower income will be supported to reach that level. We believe creative and innovative vision is needed to look at solutions which target the poorest people, including consideration of current eligibility thresholds such as the one for Pension Credit.
• Recognise — and act to improve — the more intense financial challenges and higher poverty risk for single pensioners.
• Recognise the increased poverty and inequality resulting from the rising State Pension age, and develop mitigations for those most affected. Consider changes to the social security system for disadvantaged people approaching the SPa, including those part of a mixed-age couple.
• Develop a benefits take-up strategy, which considers new and creative ways to ensure that all older people receive the full range of their financial entitlements, such as increased data sharing and automation. This is now especially urgent given the Government’s plans to tie eligibility for Winter Fuel Payment to receipt of Pension Credit from this winter.
• Ensure Housing Benefit adequacy. Commit to keeping the local housing allowance (LHA) in line with at least the 30th percentile of local rents, as recommended by the Work and Pensions Committee. LHA rates should be adjusted at least annually to keep pace with the real cost of renting.

If you want to talk to us about this work, please contact us at policy@independentage.org.

If you or someone you know is struggling financially, you can call our Helpline for free on 0800 319 6789 or find more support via our website.

References:

¹ Survey Monkey, Independent Age, May/June 2024. Sample size was 2,055 aged 66 and over in Great Britain & Northern Ireland. Fieldwork was undertaken between 5th May 2024 and 19th June 2024. The survey was carried out online. These figures have not been weighted and are not representative of adults aged 66+

² Households Below Average Income, 2022/2023, accessed via Stat-Xplore — ‘poverty’ is relative poverty, 60% of median income, After Housing Costs

³ Department for Work and Pensions (2023) — Pensioners Income Series

⁴ State Pension Data, QE May 2023, accessed via Stat-Xplore. Latest statistics available, quarter ending May 2023.

⁵ Households Below Average Income, 2022/2023, accessed via Stat-Xplore

⁶ Institute for Fiscal Studies and Joseph Rowntree Foundation (July 2024) — How have pensioners incomes and poverty changed in recent years?

⁷ Households Below Average Income, 2022/2023, accessed via Stat-Xplore — ‘poverty’ is relative poverty, 60% of median income, After Housing Costs

⁸ Pensions Policy Institute (2024) — The Underpensioned: Defining the Gender Pension Gap

⁹ State Pension Data, QE May 2023, accessed via Stat-Xplore

¹⁰ Households Below Average Income, 2022/2023, accessed via Stat-Xplore

¹¹ House of Commons Library (2022) — Pensions: International Comparisons

¹² Households Below Average Income, 2022/2023, accessed via Stat-Xplore

¹³ Centre for Ageing Better (2024) — The State of Ageing 2023/24: Financial Security

¹⁴ Institute for Fiscal Studies and Joseph Rowntree Foundation (July 2024) — How have pensioners incomes and poverty changed in recent years?

¹⁵ Joseph Rowntree Foundation (2023) — A Minimum Income Standard for the UK in 2023

¹⁶ Pensions and Lifetime Savings Association (2023) — Retirement Living Standards

¹⁷ Phoenix Insights and Nest Insight (2024) — How much is enough? Retirement adequacy and the household balance sheet

¹⁸ Centre for Ageing Better (2024) — The State of Ageing 2023/24: Financial Security

¹⁹ Sunlife (2024) — Cost of Dying: 2024 report

²⁰ Institute for Fiscal Studies (2023) — The Future of the State Pension

²¹ Department for Work & Pensions (2024) Income-related benefits: estimate of take up: financial year ending 2022

²² Independent Age (2023) — Hidden Renters

²³ Households Below Average Income, 2022/2023, accessed via Stat-Xplore

²⁴ Institute for Fiscal Studies (2022) — How did increasing the state pension age from 65 to 66 affect household incomes?

²⁵ The Health Foundation (2023) — A rising State Pension age will leave people who are out of work due to ill health at greater risk of poverty and worsening health

²⁶ Households Below Average Income, 2022/2023, accessed via Stat-Xplore

²⁷ Pensions and Lifetime Savings Association (2023) — Retirement Living Standards

²⁸ International Longevity Centre (2021) — Slipping between the cracks? Retirement income prospects for Generation X

²⁹ Living Wage Foundation (2023) — Launch of the Living Pension

³⁰ Phoenix Group/WPI Economics (2023) — Raising the bar: A framework for increasing auto-enrolment contributions

³¹ Institute for Fiscal Studies (2013) — Labour’s record on poverty and inequality