The State Pension: Adequacy, age and tackling pensioner poverty

Michelle Ravenor and Phil Mawhinney-Kam from the Independent Age Policy Team present analysis of polling data exploring the State Pension in the context of poverty in later life.

Here at Independent Age — the UK charity tackling financial hardship in later life — we are hugely concerned about the high and rising rate of pensioner poverty (16%). Through our national helpline we regularly hear from older people about how challenging and frightening later life can be when money is scarce:

“I have to spend my time worrying about money. It’s like penny pinching. It’s worrying especially when I have worked all my life.”

“I’m finding it very hard, I’ve got no savings, it’s very difficult to get proper food.”

“I will go without food and make soup that would last 4 days but that’s no way to live. I miss having nice food. I miss my old life.”

It’s important to know that one in eight people (13%) above State Pension age have no income other than the State Pension and benefits payments, rising to one in five (20%) among single pensioners. For the 1.9 million older people experiencing poverty, the State Pension — and what happens to it in the future — is crucial.

Given its importance to so many people’s incomes, we set about understanding the attitudes and experiences of pensioners — current and future — in relation to the State Pension. It is key to developing improved policies to reduce pensioner poverty.

The news agenda is often filled with stories about whether people are saving enough for retirement or debates on the ‘triple lock’. But what do older people living in financial insecurity think and need? In December 2023 we commissioned YouGov to undertake nationally representative polling to explore how people feel about the State Pension — what they think its purpose is, whether it’s enough, and how they feel about the rising State Pension age.

What older people told us:

• Most people (64%) over 50 who are not yet fully retired are worried about their financial situation in retirement. The lower a person’s household income, the more likely they are to be ‘very worried’.
• Having a disability also increases the likelihood of feeling ‘very worried’. And, a full 71% of people who reported a health condition or disability told us they knew ‘not very much’ or ‘nothing at all’ about their financial options in retirement.
• Most people (90%) over 18 think a key purpose of the State Pension is to provide a minimum income in retirement but 80% of people over 50 believe it is not enough to meet essential costs.
• Housing tenure has a significant impact, with renters over State Pension age much less likely to feel ‘relatively comfortable’ financially (14%) compared with owners (47%).
• Finally, 51% of people over 18 told us they think the current State Pension age of 66 is ‘too high’.

1. Most people approaching retirement are worried about their finances in later life, particularly those on lower incomes.

We asked people aged 50+ and not yet retired how worried they are about their financial situation in retirement.[1] Concerningly, 64% of respondents shared they are ‘worried’ about this (Fig.1).

Clearly, future finances are a source of worry for many. As reported by the Institute for Fiscal Studies, the State Pension remains key even for people in the highest income quintile, where it makes up on average 23% of income.

When broken down by household income (Fig.2), we see that close to 45% of people across all income groups report being ‘quite worried’. However, there is a striking difference in those feeling ‘very worried’. One in three people (32%) with a household income below £15k per year feel ‘very worried’, dropping to 7% of people with a household income of over £70k per year. This is suggestive of a large cohort of people approaching retirement who may be just about managing now and are unlikely to have a later life free from financial challenges.

2. Most people think the State Pension is there to provide a minimum income in retirement but that it isn’t enough to cover the essentials.

The State Pension is key to people’s income in retirement across the income spectrum but many people on lower incomes are reliant on it and extremely sensitive to changes in the amount they receive. We see in our polling that this group is far more likely than their higher income counterparts to be very worried about their future finances. And, if older people have a disability or live in rented accommodation, their fears and anxieties can increase and their financial future can feel more confusing and uncertain. These groups are much more vulnerable to policy changes such as changes to the State Pension age.

The polling we commissioned is clear - the public think a key purpose of the State Pension is to ‘[ensure] everyone has a minimum level of income in retirement’. A full 90% of respondents aged 18+ agreed with this, including large majorities across all ages and voting histories.

And when we asked respondents aged 50+ if £203.85 per week (the 2023/24 weekly rate of a full new State Pension) would be enough for their ‘essentials’, overwhelmingly they said that it would not (80%) (Fig. 3).

We support the basic principle, set out in the IFS’s report on the future of the State Pension, of an uprating approach that aims to bring the State Pension to an agreed level — as opposed to various annual increases. But key to this is the level at which it is set. Independent Age is calling for a cross-party review to agree what level of income is needed in retirement to avoid poverty, and to make State Pension uprating decisions on that basis.

Our CEO, Joanna Elson CBE, recently highlighted to the Women and Equalities Select Committee the difficulties faced by older people in poverty. She put to the committee some recommendations for ensuring that the State Pension is adequate:

“The Committee could recommend a couple of things. One is that we think Government, of whichever colour it is eventually, needs to take a step back and think about what the right adequacy is of income for later life. How do you get to a formula, maybe as has been done with the living wage or something like that? How do you agree what is fair to people? At the moment, what happens is there is a heated debate in the media; should the triple lock continue? Should the state pension age rate be raised? Understandably, older people get really worried about all this. We think things should stay as they are until there has been that good cross-party look at what adequacy should be.”

3. There is extra financial pressure on people who live with a disability.

We know that having a long-term condition or disability impacts significantly on people’s finances and can increase the likelihood of experiencing poverty in later life. In our polling, 30% of people aged 50+ with health or disability issues are feeling ‘very worried’ about their retirement finances, compared with 17% of those who do not report a disability.

Further, 71% of respondents with a disability told us they know ‘nothing at all’ or ‘not very much’ about the financial options they will have in retirement (Fig.4). Where respondents do not report a disability the percentage of those who say they know nothing at all or not very much about their financial options in retirement was also high — 61%, highlighting that people generally feel underinformed about their future finances.

This echoes what we hear through our helpline. Our advisers regularly talk with people who have a disability and are in financial hardship, who share how worried they are as they approach State Pension age (SPa). Callers in this situation tell us about their anxiety around their finances, reporting how difficult and confusing it is to navigate the system and find out what to do. Many also feel unclear about what support they will receive when they reach SPa. This emphasizes the need for improved information and advice for all people approaching retirement —which is why we support calls for a pilot scheme testing an ‘auto-appointment’ approach for the Pension Wise guidance service.

Current policy is a series of rises to the SPa, most recently to 66 but with further rises to 67 and 68 planned. However, for some people, working for longer is not an option.

Research by The Health Foundation highlights how increases to the SPa can push people already in poor health into further financial hardship. The rise to 67 in the next couple of years will happen in the context of an increased number of people approaching SPa not working due to long-term conditions and disabilities. The Health Foundation call this group the ‘lost cohort’, at risk of poverty and worsening health outcomes.

4. Many people feel the State Pension age is already too high, and a majority support the idea of financial support for people approaching State Pension age in poor health.

We asked people aged 18+ what they think about the current SPa of 66.[2] Half (51%) feel it is ‘too high’, with 36% telling us that it was ‘about right’ and 8% ‘too low’. Of those who feel it was too high, 58% identify the higher likelihood of people in later life being in poor health as a key reason for this view (Fig.5).

As the SPa continues to rise, we are concerned that this has left some people stranded below the SPa living in poverty. The Institute for Fiscal Studies (IFS) also identified that the rise in SPa from 65 to 66 ‘more than doubled’ poverty rates among 65 year-olds.

With the next rise to 67 due from 2026, we support recommendations from organisations such as Age UK and Phoenix Insights that are calling for extra financial support for those unable to work in the final years before SPa due to disability or a long-term condition.

We also wanted to explore the principle of mitigating the downsides of the rising SPa, i.e. some form of extra financial support for people with an illness/disability who cannot work up to State Pension age. We asked people aged 18+ whether they support the idea of early access to the State Pension for some people, for example those who are unable to work because of illness. (Please note, this is an illustrative example of a mitigation to explore support for the broader principle — we do not recommend this specific policy.)[3]

Agreement with the principle of additional pre-SPA financial help is significant, with 77% of people in support of this and only 15% opposing (Fig.6).

5. Older renters are in a worse financial position and renters approaching retirement are worried about the future.

Housing tenure also plays a part, with people who rent their homes at much higher risk of poverty in later life compared with home owners. Looking to the future of pensioner poverty, the decline in home ownership in retirement is possibly the most significant issue. The Pensions Policy Institute identified that the proportion of pensioner households renting privately may rise from the current level of one in twenty to one in six by 2053.

Respondents over the State Pension age of 66 feel quite differently about their position depending on their housing tenure. Renters are much less likely than owners to feel ‘relatively comfortable’, and much more likely to be ‘often struggling to make ends meet’ (Fig.7).

Many older people renting their home are heavily reliant on the State Pension. For example, more than half of single private renters aged 65–79 do not have income from an occupational or personal pension.[4] This means that Housing Benefit is a crucial income source for those who would otherwise find it impossible to pay their rental costs.

Housing Benefit for older private renters is determined by the Local Housing Allowance (LHA) rate. But due to the way it is set, LHA is unlikely to cover the full cost of an older person’s rent. And because LHA rates have at times been frozen, Housing Benefit cannot keep up with rent rises, pushing people further into financial hardship or housing insecurity.

Older private renters are having to make tough choices, like moving to cheaper areas away from friends or family. And many are having to live in poor quality accommodation or in homes that are not suitable for their health and mobility needs. These challenges and more are explored in detail in our reports ‘Hidden renters’, ‘No place for older renters’ and ‘Homing in’.

Looking ahead to future renters in later life, we asked non-retired people aged over 50 about the source of their retirement worries. Financial concerns are the most common answer — 41% are worried about economic hardship, and 56% are worried about having less disposable income. Compare this to non-retired private renters aged 50+ who answered this question, and the percentage worried about economic hardship rises to 64% — now the most common fear — and worries about disposable income rise to 61% (Fig.8). Financial worries significantly outweigh other worries for renters approaching retirement.

All non-retired renters over 50 (including social renters) are worried that their retirement income will not cover their rent - 67% responded that they are ‘Not very/Not at all confident’ compared with 20% who report feeling ‘Very/Quite confident’ (Fig.9).

Action is needed to ensure that the challenges facing older private renters are understood, and that all older people receive their financial entitlements

We were concerned to see a fall in the uptake rate of Housing Benefit among older people, from 84% in 2020 to 79% in 2022. Although it is not clear why this has occurred, there is a problem of low uptake across the social security system meaning many older people miss out on what they are entitled to.

For example, full Pension Credit uptake — only 63% of eligible people receive it, according to the latest statistics for 2021/22 — would directly reduce pensioner poverty. Research commissioned by Independent Age in 2020 showed that, at that time, increasing Pension Credit uptake could lift more than 400,000 older people out of income poverty and halve severe income poverty to 4%.

Independent Age Recommendations

We want all political parties to have the goal of ending pensioner poverty high on the agenda.

To start to tackle these issues, we believe that Governments across the UK should:

• Focus on improving uptake of all benefits for older people, including Pension Credit, Housing Benefit, Attendance Allowance and Council Tax Reduction, with a clear strategy and improved use of data to ensure that all older people receive their financial entitlements.
• Commit to annual reviews and increases to Local Housing Allowance (LHA) to match rises in local rents.
• Appoint a Commissioner for Older People and Ageing in England, and an Older People’s Commissioner in Scotland — to ensure that the needs of all older people, including renters, stay high on the government’s agenda.
• Conduct a cross-party review to agree what level of income is needed in retirement to avoid poverty, and to make State Pension uprating decisions on that basis.
• Support a pilot exercise to test an auto-appointment system for the Pension Wise guidance service.

What next?

At Independent Age we will continue to do all we can to ensure that those older people (and future pensioners) struggling on low incomes and battling poverty are not ignored in the ongoing, important debate on the future of the State Pension.

We will dig deeper and learn more about income adequacy in later life and continue to listen and learn from the older people who speak with our helpline and advice teams. We will use this insight to continue to push for the change they need.

If you’d like to know more about our policy or research you can contact policy@independentage.org

If you’d like to help us make change, you can join our campaign network.

If you are past State Pension age and struggling to make ends meet, we have free information and advice which you can access online or by calling our free helpline on 0800 319 6789.

References

[1] All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,224 adults. Fieldwork was undertaken between 1st — 7th December 2023. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 50+).

[2] All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,087 adults. Fieldwork was undertaken between 1st — 3rd December 2023. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

[3] As identified by the IFS in its report The Future of the State Pension, early access to the State Pension at a lower rate would be a problematic policy, locking people into a smaller income throughout retirement. We agree and do not currently recommend any form of early access to the State Pension. Rather, it is the best (albeit imperfect) way in polling to gauge views on the principle of extra support before SPa for disadvantaged people.

[4] HBAI 2021/2022 via Stat-Xplore.