The effect of raising the female state pension age

The Institute for Fiscal Studies (IFS) has issued a working paper examining “the effect of raising the female state pension age on income, poverty and deprivation”. It offers a variety of interesting and sometimes counter-intuitive insights to the reform, which was originally set in train by the Pensions Act 1995. For example:

• Between 2010/11 and 2015/2016, the SPA for women rose from age 60 to 63, resulting in 1.1m fewer women receiving a state pension and government providing £4.2bn a year less through state pensions and other benefits. Affected households receive about £74 a week less in state pensions and other state benefits because of this change.

• The change has also increased women’s employment rates substantially in the 60-62 age range, boosting the gross earnings of these women by £2½bn in total. Across all 60-62 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 – boosted government revenues by £0.9 billion in 2015/16. Thus, the total gain for the Exchequer from the rise in SPA was £5.1bn a year.

• Income poverty among 60-62 year old women is up sharply (by 6.4% compared to a pre-reform poverty rate among women of this age of 14.8%). However, the IFS found no evidence of any change in measures of material deprivation (ie people saying that they cannot afford a range of important items).

• The reform to women’s SPA has correspondingly increased the age that single men can claim Pension Credit. 25% of men at these affected ages are single, and are, on average, poorer than those men who are in couples. The reform reduced benefit incomes of single men aged 60 to 62 by an average of £21 per week (from a pre-reform average of £89).

The £5.1bn annual savings are a reminder of why increases in SPA can be expected to continue.