Poorer pensioners have seen smaller income increases than their richer peers, IFS report finds

More pensioners have fallen into poverty and a growing number are struggling to afford basic items and heat their homes, a new report reveals.

The average income of the poorest pensioners has increased by 5 percent since 2011, compared with a 12 percent increase for all those aged over 66 and 13 percent for the working population.

This is because, despite having received increases in state pensions under the triple lock, they have not benefited from increases in private pensions or employment income like better-off pensioners, and many more have become ineligible for means-tested state support such as pension credit.

“Pensions and retiree incomes received little attention during the election campaign,” says Anna Henry, a research economist at the Institute for Fiscal Studies, the influential think tank that compiled the report.

‘In part, this is due to a sense that retirees have fared better than others, and indeed the gap between the average incomes of retirees and those of working age narrowed dramatically, especially in the run-up to and during the Great Recession.

‘But the reductions in pensioner poverty seen before 2011 have been gradually reversing. The new government will need to focus on current and future challenges to pensioner incomes, especially those of low-income pensioners, and not assume that things will always get better.

‘Taking steps to increase the low take-up rate for pension credit – the main means-tested benefit for poor retirees – would be a natural choice.’

The IFS report, funded by the Joseph Rowntree Foundation, also found:

– Relative poverty among pensioners increased between 2011 and 2022 from 13 percent to 16 percent, which is equivalent to 300,000 additional pensioners living in poverty;

– Average non-state pension benefits paid to retirees fell by 15 per cent between 2011 and 2022, mainly because rising state and private pension revenues reduced entitlements, not because of cuts to the generosity of the benefit system;

– During the cost of living crisis, the relative poverty rate of retirees fell from 18 percent in 2019 to 16 percent in 2022;

– However, the share of pensioners who said they could not afford to buy key material items rose from 6 percent to 8 percent in this period, and those who could not afford to heat their homes rose from 2 percent to 5 percent.

The report on pensioner poverty is part of a wider IFS study on living standards, poverty and inequality, due to be published next week.

The IFS says that in the decade to 2012, pensioner poverty was reduced by focusing on living standards, introducing pension credit and increasing the state pension, and meanwhile more people are retiring with some income from a private pension.

But more needs to be done to address the low take-up of pension credit, which acts as a brake on its ability to reduce pensioner poverty.

The IFS says people failing to apply for the support they are entitled to is a problem across the benefits system and more should be done to educate and inform people about what they can get and to simplify the application process.

A Department for Work and Pensions spokesman said: “Securing a better deal for pensioners of today and tomorrow is a priority for this Government.

‘We have committed to the triple lock and are promoting pension credit and its benefits, such as help with heating costs to protect pensioners with the lowest incomes.’

Caroline Abrahams, charity director at Age UK, said: ‘There is now no doubt that the cost of living crisis hit many older people on low and modest incomes very hard.

‘Many are still struggling today because their expenses are still much higher than before energy prices skyrocketed and inflation really took off a couple of years ago.

“At Age UK we have seen and heard this directly from older people and this new report confirms it is true.”

Abrahams urges the new Labour government to make a serious effort to boost the “disappointing” take-up of pension credit among retirees, saying much more could be done to raise awareness and make it more accessible.

“Looking ahead, our aspiration should be to change the way pension credit works so that older people can access it automatically, without having to go through a tortuous application process,” he says.

But Abrahams adds that this alone will not be enough because there are a growing number of retirees whose incomes put them just above the eligibility line for the pension credit, but who still do not have enough to be financially secure.

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‘This group that is barely surviving also needs help, for example through targeted measures such as a social tariff for energy.’

Morgan Vine, policy director at the charity Independent Age, says research showing the significantly widened gap between the poorest pensioners and those on average incomes is alarming.

“Living with financial hardship at any age can be an extremely isolating and miserable experience that erodes the joys of life,” she says.

‘Many of the older people we spoke to live on very low incomes and have to limit themselves to just one meal a day, wash less to save water and even avoid socialising because they cannot afford to buy a simple cup of coffee.’

Vine says nearly two million seniors are currently living in poverty, and the pension credit is an effective tool to lift them out of that situation if its utilization is increased from its current low rate of 63 percent.