The number of people of pensionable age is projected to reach over 15.2 million by 2045, a 28 per cent increase on the level in 2020, due to rising life expectancy and an ageing population, the Institute for Fiscal Studies (IFS) has projected.

In response to the ageing population, the government has been increasing the state pension age, with it rising from 65 to 66 between December 2018 and October 2020.

Further increases in the state pension age are already legislated, starting with an increase to age 67 between 2026 and 2028.

The IFS noted that while the increases were a coherent government response in the face of rising life expectancy at older ages, “they can have a substantial effect on household finances”.

It found that the biggest impact of the increase in the state pension age on incomes was that 65-year-olds lost – on average – state pension income worth around £142 per week in 2020/21.

Accounting for all forms of income, including state pensions, earnings, other benefits, private pensions and investment incomes, the increase in the state pension age pushed down the net income of 65-year-olds by an average of £108 per week.

The reduction in households’ incomes have a “particularly important” effect on lower income households, the report went onto state.

According to the IFA, the reform caused absolute income poverty rates among 65-year-olds to climb to 24 per cent, around 14 percentage points higher than the 10 per cent the institute estimated it would have been had the state pension remained at 65.

In response to a higher state pension age, some people might change their retirement and financial plans, the IFS noted, and the full effect of a rise in the state pension age on household incomes will depend on these responses.

The thinktank added that the latest increase in state pension age led to a larger increase in income poverty than previous increases to female state pension age.

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