Change in state pension age
State pension now available at 65 and three months
A milestone will be reached on Wednesday 6 March when the state pension age for men and women reaches 65 and 3 months – the first time since the 1930s that men and women will begin receiving the state pension at an older age than 65.
From 1940 until late 2018 the male state pension age (SPA) was 65. Over this period, male life expectancy has risen substantially. Male life expectancy at birth rose from 71 in 1980 to 79 today, while male life expectancy at age 65 rose from 13 years in 1980 to 18½ years today.
Since December last year the state pension age for men is no longer 65. A man born on 6 December 1953 – who turned 65 on 6 December 2018 – was not able to claim a state pension then, but can first do so from Wednesday 6 March), at the age of 65 and 3 months. For those entitled to a full single-tier pension, which is currently worth £164.35 a week, a three-month delay means a total loss of just over £2,100 of state pension income.
It is not only men whose state pension age is rising above 65, it is happening for women too. Following almost nine years of gradual increases in the SPA for women from 60 to 65, for the first time since 1940, both men and women now have the same state pension age. By September 2020, the state pension age will have risen to age 66 for both men and women.
The increase in the female state pension age from 60 to 65 was legislated in 1995. The intention to increase the state pension age beyond 65 was first legislated in 2007. In 2011, the Coalition government brought forward the increase in the state pension age for men and women from 65 to 66 from Spring 2022 to the end of 2018. The 2011 Pensions Act also accelerated the increase in the state pension age from 63 to 65 for women between 2016 and 2018.
These increases in the state pension age have been controversial. But they save the government a lot of money. Previous IFS research found that the increase in the female state pension age from 60 to 61 saved the government around £2 billion per year.
Further increases will have been likely to deliver savings of a similar magnitude. The Department for Work and Pensions estimates that, were they to have to compensate women for the rise in the pension age covering the period up to 2020–21 it would cost £77 billion, with greater annual spending thereafter.
The effect of the rising female state pension age on employment rates of women aged over 60, but below their (now higher) state pension age, has been large. However the vast majority of women did not delay retirement as a result of a higher state pension age.
Between 35% and 40% of women have already left paid work by age 60 and do return to paid work just because their state pension age is now higher. In addition, around half of women retire after 60, but have not delayed their retirement in response to the higher pension age.
So what can we say about the potential effect of the rise in the SPA for men and women to 66? We might expect reasonably large increases in employment – in particular among men aged 65.
In 2018 the employment rates of men moving from age 64 to 65 dropped by 14 percentage points (from 49% to 35%) while the employment rates of women dropped by 12 percentage points (from 34% to 22%). Those who do respond by delaying their retirement might end up with incomes higher than they would otherwise have been: average (median) weekly earnings of men aged 64 who were employees in 2018 was £425 while for women the equivalent figure was £288.
Those who do not retire later will see their incomes reduced – with this loss depending on the extent to which higher income from working-age benefits (for example from Universal Credit) compensates for the delayed receipt of the state pension.
Those who are not in paid work and not receiving other benefits will need to rely on other sources of income, such as the earnings of their spouse or their private pension pots, to tide them over until they do receive the state pension.
This is an edited version of an article first published by the Institute for Fiscal Studies