People in their early to mid-60s have the highest poverty rate of any adult age group. The Fabian Society says this is the result of increasing state pension age without putting in place other measures, and calls for better support for longer working lives and policy change to increase pension saving, including raising employer contributions to at least 12% of total earnings. 

In a new report published on Wednesday, ‘When I’m 64’, the socialist organisation says since 2010, no significant measures to ameliorate the impact of the rising pension age have been introduced, which means that today, the years before state pension age is when living standards are most polarised. 

UK governments increased the pension age for women from 60 in 2010 to 65 in 2018, and then raised it for both men and women to 66 in 2020. State pension age will rise to 67 between 2026 and 2028 and is expected to go up to 68 between 2044 and 2046. The government suggested another state pension age review, following a 2023 exercise which recommended accelerating the rise to 68, to consider when to implement age 68. 

Last year, the Institute for Fiscal Studies said raising the pension age from 65 to 66 led to about a quarter of 65-year-olds ending up in poverty, more than doubling in one year.  

The Fabians found similarly in their new report and highlighted growing inequality within this age group. While over a third (36%) of 55 to 64-year-olds live in households with more than £1m in assets, and nearly a third (31%) have a second home,  two-fifths of 60 to 65-year-olds are in households with less than £3,000 in savings, a fifth (21%) live in a rented home and 17% have a gross household income of less than £300 a week. 

Retirement savings do not fill the gap between leaving work and state pension age, they add. Two-fifths of 60 to 65-year-olds who are in poverty are in a household with a private pension in payment, rising to 47% among households in poverty where no one is in work. 

“People are generally in this position because they have not saved enough for a good standard of living and have left their employment when working for longer could have improved their financial security,” the Fabians say. 

The report notes that 24% of 60 to 65-year-olds without work and in poverty live in a household with savings or investments of more than £16,000, including pension lump-sums, redundancy payments and inheritances, but that this might be all they have to provide security in old age. 

“Accessing private pensions before the state pension age is a pragmatic choice for some people but most people with low lifetime earnings would benefit financially from working longer or saving more,” according to the report. 

The report found that over half (56%) of 60 to 65-year-olds and 31% of 55 to 59-year-olds draw a private pension. Of this combined group, 56% are not working.  

When those who had accessed their private pension were asked to explain why they had done so before state pension age, the most common explanation was that the pension was available (31%) or that they needed the money (21%), while one in 10 mentioned paying off a mortgage, other debt or other financial considerations. 

Despite stating explicitly that early pension access reduces the incentive to work longer, the Fabians are not calling for any change to early access. Instead, they argue that people should save more and are calling for workplace pensions to be reformed, “so that low and middle earners are able to build up pensions worth a higher share of their earnings”.  

Recently passed powers to reform auto-enrolment are set to increase savings levels somewhat, but the government has so far resisted lobbying by the pensions industry to increase minimum auto-enrolment contributions to 12%, split 50-50 between employees and employers, from the current 8% of qualifying earnings.  

The Fabians go further, saying employer contributions alone should be worth at least 12% of total earnings for low and middle earners. The society wants to see solutions for automatic pension saving for the self-employed, and higher sector-level minimum employer contribution standards in low-paying industries such as adult social care. It also points to auto-escalation at life events, and being able to ‘opt down’ rather than opt out. 

For those already nearer retirement, it adds: “Immediately, people aged over 55 need better guidance and defaults to ensure they access what pensions they have in a way that strikes a balance between their short and long-term financial needs."  

It wants communications for over-50s to focus on working longer, saving more and accessing pensions at state pension age, as well as information about the implications of accessing a pension early.  

The society also calls for automatic consolidation of DC pots as people approach retirement and “requiring most people to take guidance or advice before accessing a pension more than three years before state pension age”.  

The government’s PensionWise service already provides free guidance to over 50s with a defined contribution pension but just 14% of DC pots were accessed after using PensionWise before the introduction of the ‘stronger nudge’ in 2022. Recent data by the Financial Conduct Authority showed that regulated advice was taken for only a third (32.9%) of plans accessed for the first time in 2022-23.

Part of the issue that causes poverty for over-60s, the Fabians say, is that the “binary divide between ‘working age’ and ‘pension age’ does not reflect the lives of people in their 60s”. 

Just half (52%) of 60 to 65-year-olds were working in 2023, falling to 40% among 65-year-olds. The increase in state pension age did lead to higher employment among the over-60s, but during the pandemic, the employment rate for this age group fell and has not recovered since, the report notes.  

Being out of work is highly correlated with poverty, as 70% of those in poverty over 60 were not working – around 810,000 people.  

The society therefore sees reforms of the labour market as key, calling for a ‘good work’ accreditation standard, flexible working and occupational health interventions, as well as requiring large employers to report their employment and pay statistics in relation to age and disability. Among people aged 55 to 65 who have given up work, 38% said they would be more likely to return to work if a job was available with hours that suited them, 32% if the location suited them, 30% if the job did not cause them too much stress, 30% if a job suited their current skill set, and 25% if a job offered enough control over their day-to-day at work. 

Factors helping people to delay retirement were that their job did not cause them too much stress (24%) and they received the reward and recognition they felt they deserved at work (22%).  

The Fabians also propose help for over-55s to reskill, with relevant pilot projects to build the evidence. 

As well as calling for labour market and pension reforms, the Fabians argue that “action is needed to increase benefit take-up as a top priority”. Means-tested benefits are claimed by only about half (49%) of those 60 to 65-year-olds “who are almost certain to be eligible”, the report says, while state pension take-up is near universal and 60% of eligible pensioners claim pension credit. The Fabians say over-60s are missing out on means-tested benefits of about £1.8bn. 

Phoenix Group’s Catherine Foot, director of Phoenix Insights, said the situation for people in their 60s will worsen without policy interventions.    

“An increasing state pension age doesn’t automatically mean people are able to remain in work and continue to earn and save... We need good work to be more sustainable for people throughout their lives, offering greater flexibility and providing more opportunities to those in their late 50s and 60s to remain in the workplace. And it is crucial that people who are unable to work and are without savings to plug the gap to state pension age are properly supported, or we will face a worsening of financial vulnerabilities,” Foot said.