The implications of Government policy for future levels of pensioner poverty
This report provides new projections of the percentage of pensioners living in relative income poverty under a continuation of current Government policy on pensions and under alternative policy scenarios. Some of the policy proposals considered relate to the latest proposals suggested by the Government such as the introduction of a single-tier state pension of £140 a week. The research was commissioned by Age UK.
Pensioner poverty has been falling over the last three decades in the UK. At its peak in 1989, 39% of pensioners had incomes below the relative poverty line of 60% of median income, after housing costs (AHC). By 2005 this had fallen to around 18% of pensioners living in relative income poverty.
However, in more recent years, pensioner poverty levels have remained steady and the Government’s most recent figures suggest that in 2009/10 around 1.8 million pensioners were living in households with household income below the relative poverty line of 60% of median income, after housing costs (AHC). This represented 16% of a total of 11.5 million pensioners living in the UK.
The structure of the tax and benefit system may have a significant impact on poverty levels among pensioners. The Labour Government’s approach to reducing pensioner poverty was to increase the provision of meanstested benefits, most notably, through the introduction of Pension Credit.
The approach also included attempts to increase the take-up and the levels of means-tested benefits paid.
For future pensioners, the approach to tackling pensioner poverty levels was driven by the recommendations of the Pensions Commission that have been translated into state pension reforms legislated in the Pensions Act 2007. The reforms already implemented have included, among other measures, a reduction in the required number of National Insurance Contributions’ (NIC) years to qualify for a full Basic State Pension (BSP) and the introduction of National Insurance (NI) credits to qualify for the BSP and the State Second Pension (S2P).
In 2007, the Institute for Fiscal Studies (IFS) analysed the impact that the state pension reforms set out in the Government’s 2006 White Paper might have had on pensioner poverty. However, since this study was published, many policy changes have taken place and further changes may be
introduced in the near future.
The current Coalition Government has introduced measures that will increase the level of the Basic State Pension in the future by indexing it to the higher of earnings, growth in the Consumer Prices Index (CPI) or 2.5%, whichever is higher – the triple-lock. It has also introduced reforms to means-tested benefits. The Government is also consulting on significant further reforms to the state pension system.
Many of these policies could have an impact on pensioner poverty levels. Consequently, there is a need for an updated analysis of how pensioner poverty levels could be affected under current policy and under alternative policy scenarios.