"The increased state pension age is boosting employment – and therefore earnings – of affected women but this is only partially offsetting reduced incomes from state pensions"
This means that affected households are receiving about £74 a week less in state pensions and other state benefits.
For women aged 60 to 62, who are now under the state pension age, the reform has increased employment rates substantially, boosting the gross earnings of these women by £2.5 billion in total. Across all 60 to 62 year old women (including those not in paid work) this is equivalent to an average of £44 per week. This – and the fact that employee national insurance contributions are paid up to the (now higher) state pension age – has boosted government revenues by £0.9 billion.
The net effect is that household incomes for women in this age group have fallen by around £32 per week on average. The reduction is similar in cash terms for richer and poorer households meaning that while the average drop in proportional terms is 12%, the decline is significantly larger, on average, for low income households (21%) than for high income households (4%).
The falls in household incomes caused by the reform have pushed income poverty among 60 to 62 year old women up sharply (by 6.4 percentage points compared to a pre-reform poverty rate among women of this age of 14.8%).
The female state pension age is continuing to rise, reaching 65 in 2018 and (along with men) 66 in 2020.
Jonathan Cribb, a senior research economist at the IFS, said: “The tax and benefit system is much more generous to those above the state pension age than those below it. So while increasing the state pension age is a coherent response to the public finance challenge posed by rising longevity it does place a further pressure on household budgets.
"The increased state pension age is boosting employment – and therefore earnings – of affected women but this is only partially offsetting reduced incomes from state pensions and other benefits. Since both rich and poor women are losing out by, on average, roughly similar amounts the reform increases income poverty rates among households containing a woman who has reached age 60 but has not yet reached her state pension age. More encouragingly, we find no evidence of increases in other measures of material deprivation. It is important that the Government communicates the ongoing increases in the state pension age clearly so that families can plan for their retirement as well as possible.”
Carl Emmerson, deputy director at the IFS, added: “Female state pension age today is almost 64, up from 60 in 2010. However increased longevity means that on average they can expect to receive the pension for 25 years which is as long as women reaching the state pension age at 60 in 1993. Even when the state pension age hits 66 in 2020 women reaching the state pension age then will receive their pension for 23 years on average, comparable to the length of time for those reaching the state pension age at 60 in 1987.”
Peter Bradshaw, National Accounts Director, Pension Monster, commented: “Women are facing a retirement nightmare. The accelerated rise in the state pension age adds further pressure on them to work longer. For some, continuing to work until the state pension age may not be possible due to poor health and so there will be a shortfall between retiring and receiving support from the state. Many women will not receive a full state pension having taken career breaks to care for family members.
"There is a pressing need to educate the public on the importance of saving, particularly as the true cost of retirement is often under-estimated. It is vital to factor in extra costs for later life such as care home costs, especially as life expectancy increases. There are plenty of free online tools, such as Pension Monster, which could help women to start planning for the uncertainties ahead.”
