Pensioner Poverty: challenges and mitigations

The reductions in pensioner poverty in the late 1990s and 2000s, with the introduction of Pension Credit, were a success. However, we are concerned that from 2010 rates started to rise again. And the latest data on living standards paints a bleak picture, with 2.8 million pensioners living in households below the Minimum Income Standard. No older person should be unable to have a minimum, dignified, socially acceptable standard of living. (Conclusion, Paragraph 16)

Improving pension outcomes requires an understanding of the systemic challenges. Of the groups at risk, we took most evidence on the position of women, who make up two-thirds (67%) of pensioners in poverty. Some positive steps have been taken to improve their pension outcomes: in particular, through the introduction of the new State Pension. However, there remain ‘blind spots’ in policy making, which result in the reality of women’s lives being insufficiently reflected in the design of the pensions system. Unpaid care work is often not credited; women in low-paid work, on short-term contracts, or in non-traditional employment, often fall out of the scope of auto-enrolment; and while pensions can be shared on divorce, this often does not happen in practice and does not apply to cohabitees. The previous Government’s introduction of regular gender pensions gap reporting was an important first step in focusing on factors affecting retirement outcomes for women. (Conclusion, Paragraph 28)

Sporadic reports on the size of the gender pensions gap are insufficient to track whether the situation is improving and to focus attention on the reasons for this. As such, the Government should commit to reporting on the gender pensions gap at least every two years. (Recommendation, Paragraph 29)

The pensions adequacy review should consider pension inequalities, the groups who are more likely to live in poverty in retirement, and how this will be addressed. (Recommendation, Paragraph 30) 81 Impact on older people

As pensioners are generally on a fixed income, they face challenges responding to cost-of-living increases. Those on low incomes are likely to respond by cutting back on food, energy use and social interactions, adding to existing health risks. Various social and environmental risk factors such as poverty, bereavement and isolation and cold as well as lifestyle factors such as diet contribute to accelerating the ageing process, so-called frailty, reducing healthy life expectancy and the capacity to live independently. From this follows significant increased demand for health and social care services and increasingly grim health outcomes. Without a much greater focus on a whole system approach to prevention, tackling the factors that cause ill-health amongst pensioners, including poverty itself, the Government will not be able to achieve its goal of building a health and social care service that is sustainable for future generations. (Conclusion, Paragraph 41)

The Government says it is taking a cross-department approach to address the challenges faced by older people. We were interested in arguments that it would help to have a strategy where the Government set out its objectives for older people and the mechanisms to ensure that those priorities are reflected in policy across government departments. As an example, the Government wants to take a more preventative model to ill health. However, it is hard to see how the removal of Winter Fuel Payments with little notice from most pensioners in winter 2024/25, aligned with this. (Conclusion, Paragraph 48)

In addition, a preventative approach requires a cross-sector approach, with stakeholders across a range of policy areas pulling together in the same direction. We were impressed by the work in areas like Greater Manchester where local authorities are collaborating with third sector and community organisations to provide integrated support for pensioners, in spheres such as housing, health, community support and benefit take-up. However, the lack of framework to hold local government to account for this work and lack of central government strategy for an ageing society is holding back progress. Wales’s national ageing strategy has given older people, organisations and their funders confidence that the Welsh Government has a commitment to improve the lives of older people long-term. (Conclusion, Paragraph 49)

The Government should commit to a cross-government strategy for an ageing society, with equity of health and well-being for older people at its centre. This strategy should set out how cross-sector working is to be achieved, with effective mechanisms for holding the different parties involved to account. (Recommendation, Paragraph 50) 82

Some older people do not feel that their interests are being heard in government decision making. Wales’ Older People’s Commissioner has made a substantial difference in areas including digital inclusion, care homes and access to GP practices. The Commissioner’s statutory powers of review give the role authority and it has been able to bring together organisations across sectors to work together to support older people. (Conclusion, Paragraph 57)

We recommend the Government appoint an Older People’s Commissioner for England. If the Government decides not to, it should explain what alternative mechanism it proposes to address the issues of, for example, accountability, co-ordination and advocacy, and how this will ensure that older people in England have a strong independent voice to represent their interests, with equivalent authority to review decisions of public bodies and government. (Recommendation, Paragraph 58) Winter Fuel Payments

For winter 2024/25, the Government linked eligibility for the Winter Fuel Payment to receipt of Pension Credit. This removed the payment from many who needed it and set the bar for continued payment too low. Up to 760,000 pensioner households do not claim Pension Credit that they are entitled to, and many just above the Pension Credit threshold, for whom this was an addition to the list of passported benefits they miss out on, felt the impact was unfair. We welcome the Government’s decision to make payments automatically to all pensioners in winter 2025/26, recovering it via HMRC from people with incomes of over £35,000. This will mean the payment gets to those who need it. (Conclusion, Paragraph 78)

Our predecessor Committee is amongst those that have criticised Winter Fuel Payments for being poorly targeted and a ‘blunt instrument’ for tackling fuel poverty. As a universal payment, WFP went to pensioners who did not need it, and its real terms value has dwindled over two decades since it was introduced. However, we heard very clearly that pensioners valued it, had come to rely on it and that it gave them “confidence to turn the heating on.” The change in eligibility was announced in July, giving limited time for older people and organisations working with them to prepare for the coming winter, and followed years of high energy prices. Whatever the merits of the change, it created uncertainty and anxiety for pensioners about how they would manage. (Conclusion, Paragraph 87)

The Government conducted a very limited high-level equality analysis of WFP reform, estimating the impact on the number of pensioners in poverty. We heard repeatedly about the possible impacts on their health, as well. While this may be difficult to quantify, a fuller impact assessment, 83 considering the cumulative impact and broader impact of policies and the views of pensioners, might have contributed to a different policy change or more effective plans for implementation. (Conclusion, Paragraph 88)

As previously recommended in our report on Safeguarding Vulnerable Claimants, DWP should analyse the potential impacts of new policies or key policy changes on claimants that will be affected, including older people. This should include reviewing the capacity, data and processes it needs to do this effectively. As also recommended in that report, changes should be assessed by the Chief Medical Advisers’ team to understand the potential health impacts. (Recommendation, Paragraph 89)

Direct reductions in energy bills ensure that money is spent on energy, giving pensioners the confidence needed to turn the heating on. This is currently provided through the Warm Homes Discount, which provides a discount of £150 on bills for households on means-tested benefits. There is general agreement that this does not go far enough. There are many people on fuel poverty but not in receipt of means-tested benefits and the amount is insufficient to meet a fuel poverty gap of £400 (£700 in rural areas). There is widespread support for a scheme to provide more generous discounts on bills to a wider range of people (sometimes referred to as a ‘social tariff’). (Conclusion, Paragraph 94)

As a matter of urgency, DWP and DESNZ should consult on a new long-term targeted energy bill support scheme (a ‘social tariff’) able to provide more generous support than the existing Warm Homes Discount scheme and also to reach a wider group of pensioners in fuel poverty but not in receipt of means-tested benefits. (Recommendation, Paragraph 95)

Data is needed to identify people not on means-tested benefits but in need of bill support. Not having the mechanisms for this is one of the barriers to the introduction of a social tariff for energy. It is already an issue in other sectors, such as water, where social tariffs are underclaimed. (Conclusion, Paragraph 100)

The Government should report back to the Committee by the end of 2025 on: the changes to primary legislation for data sharing needed to enable the introduction of a social tariff; and any short-term changes to secondary legislation that could improve access to data to enable suppliers to more effectively target households in need of bill support and to populate Priority Services Registers. (Recommendation, Paragraph 101) 84 Pension Credit take up

We welcome the Government’s commitment to increase Pension Credit take-up and progress so far, with 60,000 additional awards since July 2024. Long experience and extensive research demonstrate that the main barriers to claiming relate to pride, not wanting to ask for help and a feeling that ‘benefits are not for people like me.’ We agree with the Minister that the message should be that it is worth claiming and that the Department is there to support people in doing so. (Conclusion, Paragraph 111)

The Minister referred to the reputation of the Department and the reluctance of people to engage with it. We know that trust issues exist between working age people and the Department, and these will endure as they reach pension age. Given this, we disagree with the Minister that there is not an impact in terms of trust that might impact on older peoples’ willingness to claim. (Conclusion, Paragraph 112)

The Department should put in place the resources needed to process claims in an efficient and timely manner and helpline advisers able to give the advice needed to navigate the system in more complex cases. The Government communications on social security benefits should emphasise that DWP is there to support people and encourages them to claim the benefits they are entitled to. DWP should also invest in more place-based promotion through trusted advocates. (Recommendation, Paragraph 113)

Differences in rules mean that it is not straightforward to award one benefit based on information provided for another without changes in legislation. We look forward to seeing the consultation on the Government’s proposed merger of Housing Benefit and Pension Credit and how the challenges arising from the differences are proposed to be overcome. In addition, we heard that in the case of carers, there is a specific change that could be made to increase Pension Credit take-up. (Conclusion, Paragraph 119)

The Government should include questions on caring responsibilities in the Pension Credit application and implement provisions in the Welfare Reform Act 2012 to allow direct access to the carer addition in Pension Credit without a claim for Carer’s Allowance. It should take forward plans to ensure Universal Credit claimants claiming their State Pension are also made aware of potential entitlement to Pension Credit. (Recommendation, Paragraph 120)

Effective take-up work requires, firstly, face to face support and encouragement from trusted individuals and organisations on the ground. The complexity of the benefits system means that expert welfare rights advice is often also needed. In some areas, local authorities, third sector and community organisations work together effectively to do this. The 85 rewards are significant—increasing the incomes of the poorest pensioners, bringing money into the local economy and reducing demand on health and social care services. However, not all local authorities co-ordinate action to support benefit take-up, often as a result of resourcing challenges. These tend to be the same local authorities who would benefit most from planned engagement activities. (Conclusion, Paragraph 131)

DWP should develop a strategy for benefits take-up in England by the end of 2025. It should work with the Ministry of Housing, Communities and Local Government to develop a framework for monitoring local authority work on take up and holding them to account for the results. We have heard about the research conducted on the economic gains from take-up. This research should be promoted to encourage the investment needed, including in welfare rights advice and community advocacy. (Recommendation, Paragraph 132)

Local Welfare Support plays an important role both in crisis support and in funding take-up campaigns. We note the importance of longer-term funding to allow local authorities to plan ahead and so welcome the announcement in the Spending Review of a multi-year settlement for the Crisis and Resilience Fund in England (Conclusion, Paragraph 135)

When the guidance is produced, it should encourage the use of the Crisis and Resilience fund for benefit take-up work. The Government should assess what more is needed to increase the advice sector capacity needed to support this work. (Recommendation, Paragraph 136)

We welcome the Government’s recognition of the importance of better data sharing arrangements to increase take-up of means-tested benefits, and the work it is doing to address the issues. (Conclusion, Paragraph 141)

DWP should report back by the end of 2025 on progress in addressing the barriers to data sharing identified by the Minister, particularly in relation to enabling DWP to give local authorities more visibility of Pension Credit and Universal Credit data; and on sharing of HMRC data. (Recommendation, Paragraph 142) State Pension adequacy

We note evidence from the UK and internationally shows that the design and level of state pension benefits can have a significant impact on pensioner poverty, as well as improving health outcomes. (Conclusion, Paragraph 146)

We welcome the pensions adequacy review and its focus on outcomes. We note that there are different measures, which are all helpful in telling us different things, such as: replacement rates indicate the extent to which 86 people are able to maintain a standard of living throughout life; the relative poverty measure tracks how people on low income keep up with the rest of society; and the Minimum Income Standard sets out what the public agree is needed for a minimum, dignified, socially acceptable standard of living. (Conclusion, Paragraph 160)

The pensions adequacy review should consult on objectives for the State Pension, taking account of adequacy, sustainability and fairness. Given that it is the core of the Government’s offer to pensioners, relied on by many pensioners on low incomes, a guiding principle should be that it provides the amount needed for a minimum, dignified, socially acceptable standard of living. The Government should set a strategy to reduce both the proportion of pensioners living below this level in future and inequality between pensioners. (Recommendation, Paragraph 161)

One in eight pensioners rely solely on the state pension and it makes up 80% of the retirement income of the poorest pensioners. The Minister for Pensions said to us that the State Pension formed the ‘bedrock of Government support’ for pensioners, yet we heard that many of those who rely on it are experiencing financial difficulties and hardship. Some of the reasons for this relate to the design of means-tested benefits such as Pension Credit and Housing Benefit and some to low-take up. However, it is also the case that many pensioners do not receive the full new State Pension. Comparisons are complex, partly due to the interaction with workplace pensions. However, those at risk are likely to include the 2.1 million who receive less than the full basic State Pension. (Conclusion, Paragraph 166)

Once an objective for the State Pension relating to adequacy has been agreed, the Government should put in place a plan for getting everyone to that level. The first step should be to review those aspects of the state pension and benefits system that undermine its adequacy for some pensioners. (Recommendation, Paragraph 167)

The reason the new State Pension was set above the Pension Credit Guarantee was to improve savings incentives. However, over the years more ‘passported benefits’ have become linked to it, meaning that being just a few pounds above Pension Credit level can now mean missing out on thousands of pounds of passported benefits. The decision to link the Winter Fuel Payment to Pension Credit shone a spotlight on this ‘cliff- edge’. Pensioners just above the threshold told us in strong terms that this was unfair, and organisations working with older people outlined severe hardship in this group. We heard that some form of taper could offer a solution, and that the planned merger of Pension Credit and Housing Benefit from 2026 was an opportunity to implement this. The Minister acknowledged 87 that a taper could reduce the sense of unfairness associated with the ‘cliff edge’, but identified other factors that would need to be considered, such as complexity and incentive effects. (Conclusion, Paragraph 174)

The Government should consider the case for a taper in Pension Credit, paying particular attention to equity of outcomes for people close to the threshold, and assess other options to mitigate the cliff-edge effect. (Recommendation, Paragraph 175)

The mixed age couple rule means that where one member of a couple is under pension age, they must claim working age benefits, rather than pension benefits as previously. The outcome is that some people in their 70s are still on Universal Credit, which is paid at a significantly lower level than Pension Credit. The rationale for this approach is based on assumptions about their partners’ capacity for paid work, that the Department appears to have limited evidence to support. (Conclusion, Paragraph 179)

The Government should investigate the extent to which it is reasonable to assume that the younger partners in these couples should be subject to work conditionality—taking account of any health conditions and caring responsibilities—and report back to the Committee by the end of 2025. (Recommendation, Paragraph 180)

The Pensions Policy Institute expects the number and proportion of pensioners renting privately to grow from around 6% now to 17% in 2041. As many as 400,000 households could become dependent on means-tested benefits. Pensioners renting privately are already at risk of poverty, with the operation of the Local Housing Allowance a contributing factor. (Conclusion, Paragraph 184)

The Government should assess the impact of the Local Housing Allowance on pensioners and whether it leaves them with the income needed for a minimum, dignified, socially acceptable standard of living and report back to the Committee by the end of 2025. The long-term housing strategy, which will set out how the Government will deliver its plan for 1.5 million new homes this Parliament, must include plans for housing for older people, addressing security of tenure, at affordable and sustainable rents. (Recommendation, Paragraph 185)

The State Pension age is an important tool for containing the costs of the State Pension. However, improvements in life expectancy across the country have stalled. People living in the most deprived areas of the country have lower life expectancy and lower healthy life expectancy than people in less deprived areas. Increases in the State Pension age have a disproportionate impact on them: they receive it for a shorter amount of time. The last time the State Pension age increased, there was an increase in the number of 88 pre-pensioners in poverty. Those unable to keep working are likely to have to continue to use up savings and to rely on means-tested benefits for people of working age, which are much less generous. (Conclusion, Paragraph 191)

By the end of 2025, the Government must produce an impact assessment of the forthcoming increase in the State Pension age from 66 to 67. This should consider the cumulative impact of policies and set out the impact on pre-pensioner and pensioner poverty, by income decile and protected characteristic. It also should explain what measures the Government has considered to mitigate the impact, which it has accepted or rejected, and the reasons for this. (Recommendation, Paragraph 192)

We recognise that many 1950s women are deeply disappointed by the Government’s refusal to pay compensation following the Parliamentary and Health Service Ombudsman’s finding of maladministration. The decision has been legally challenged and we await the outcome of that process. (Conclusion, Paragraph 201) 89