IFS - Increased female SPA has already boosted government finances by £5.1bn/yr, with more to come, but 1.1m women worse off by an average of £32/wk

3 Aug 2017 09:17 AM

Between 2010 and 2016, the state pension age for women rose from age 60 to 63. The result is that 1.1 million fewer women are receiving a state pension and government is providing £4.2 billion less through state pensions and other benefits. This means that affected households are receiving about £74 a week less in state pensions and other state benefits as a result of this change.

For women aged 60 to 62, who are now under the state pension age, the reform has also increased employment rates substantially, boosting the gross earnings of these women by £2½ 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%). On the other hand we found no evidence of any change in measures of material deprivation (that is people saying that they cannot afford a range of important items). This might suggest that, despite lower incomes, so far families have generally managed to avoid higher levels of deprivation by smoothing their spending over time.

These are the headline findings of new research into the impact on household incomes and the government’s finances from the increases in the female state pension age seen so far, funded by the Joseph Rowntree Foundation and the Economic and Social Research Council, and published by the Institute for Fiscal Studies.

Further findings from the new research include:

• Reduced state benefits (most importantly the state pension), increased employee national insurance contributions, and higher employment mean the increased state pension age from 60 to 63 boosts the public finances by £5.1 billion per year by 2015–16. The female state pension age is currently continuing to rise, reaching 65 in 2018 and (along with men) 66 in 2020. This public finance benefit will increase as the state pension age rises further.

• Rates of income poverty among women are greater for those just below the state pension age than for those just above it. Before the reform income poverty among 57-59 year old women was 17.5% while that for 60-62 year old women was 14.8%. The increase in income poverty from increasing the state pension age is due to fact that the working age tax and benefit system is considerably less generous than that faced by those over the state pension age.

• The higher rates of income poverty caused by the higher state pension age are not persistent in the sense that there is no impact of the reform on income poverty rates once women reach their, now higher, state pension age.

• Even for poorer groups, such as single women, and renters, who might find it particularly difficult to adjust to a higher state pension age, we find no evidence of any increase in the proportion reporting being unable to afford a set of important material items.

• The same reform increases the age that single men can claim Pension Credit from 60 to 63 over the same period. 25% of men at these ages are single, and are, on average, poorer than those men who are in couples. The reform reduces benefit incomes of single men aged 60 to 62 by an average of £21 per week (from a pre-reform average of £89), and increases their income poverty rates by 6.1 percentage points (from a pre-reform rate of 23.4%).

Jonathan Cribb, a senior research economist at the Institute for Fiscal Studies, and an author of the new report, 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 Institute for Fiscal Studies, and the other author of the report, said: “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.” 

 Notes to editors

1. “Can’t wait to get my pension: the effect of raising the female state pension age on income, poverty and deprivation” by Jonathan Cribb and Carl Emmerson is available on the IFS website ifs.org.uk 

2. If you have any questions, please contact Bonnie Brimstone in the IFS press office: bonnie_b@ifs.org.uk / 020 7291 4818 / 07730 667 013.

3. This work has been produced with funding from the Joseph Rowntree Foundation (JRF). The JRF is an independent organisation working to inspire social change through research, policy and practice. For more information visit jrf.org.uk or follow @jrf_uk on twitter. For press releases, blogs and responses follow @jrfmedia.

4. Co-funding was provided by the Economic and Social Research Council for support through the Centre for the Microeconomic Analysis of Public Policy at IFS (grant reference ES/M010147/1).