2nd Report - Transition to State Pension Age

We welcome the fact that the government asked Dr Suzy Morrissey to balance fairness and sustainability in her independent review of the State Pension age and set up a Second Pensions Commission to make recommendations on broader questions of adequacy, fairness and sustainability to guide the long-term future of the pensions system. The range and scale of challenges outlined in the Commission’s interim report, make clear that pensions policy is at a pivotal point. (Conclusion, Paragraph 9)

The risk is that outcomes from these important reviews come too late for many reaching State Pension age in the next few years. The impacts of the rise to 67 will be very uneven. For many unable to keep working, particularly on low incomes and in the most deprived areas, it will mean hardship as they wait longer for a State Pension. Their shorter life expectancy means that they can then expect to receive it for a shorter time than those in the least deprived areas. We know that the last increase—from 65 to 66— resulted in absolute poverty rates among 65-year-olds more than doubling. In response to our Pensioner Poverty report, the government declined to conduct a further impact assessment before the end of 2025, or to explain its considerations regarding options to mitigate the impact. Concerned that much had changed since the impact assessments in 2011 and 2013 and that there were gaps in the government’s understanding, we launched this inquiry. Our conclusion is that additional social security support is needed to support the transition. (Conclusion, Paragraph 10) The State Pension

We recognise that there are challenges ahead, with an ageing population meaning rising costs in a tight fiscal environment. In future decisions, on the State Pension and other state entitlements for pensioners, it will be important for the government to balance sustainability, adequacy and fairness. The government refers to the State Pension as a foundation for 61 private pension saving and says its ‘revealed objective’ is for a slightly higher level of State Pension than now, delivered via its commitment to the triple lock for the rest of this Parliament. However, this offers no guarantee of adequacy for those solely or mainly reliant on the State Pension. As things stand, the Second Pensions Commission said the State Pension does not necessarily deliver adequacy by itself. (Conclusion, Paragraph 27)

We agree with the Second Pensions Commission that current policy is not grounded in clear objectives for adequacy and that it would help guide future policy to define what ‘adequate’ means in a way that accurately represents pensioners’ financial resources across the income distribution. An adequacy objective would help guide future policy decisions, for example, as to how the State Pension is uprated. (Conclusion, Paragraph 28)

The government must work towards a sufficiently clear adequacy objective to guide its future decisions on State Pensions and state entitlements. It should say whether a State Pension that tries to avoid poverty but does not necessarily deliver adequacy, represents the extent of its ambitions. (Recommendation, Paragraph 29) Increase in the State Pension age

The State Pension age started to rise to 67 in April 2026. However, many people are not in work by that age. In 2025, by age 65, only 42% were in work and by age 66, this had fallen to 29.3%. Reasons for leaving work reflect inequality, with, typically, wealthier people choosing to retire, and poorer people leaving due to ill-health or with caring responsibilities. (Conclusion, Paragraph 46)

Financial resources, work capacity and good health are all factors that help protect individuals as the State Pension age increases. However, people reach their pre-pension years with very unequal levels of all of these. People who have typically worked in lower income roles, had periods out of the labour market and not been able to access housing wealth, experience cumulative disadvantage that builds over time. There is a geographical dimension as well, with ill-health and disability concentrated in the most deprived areas, where there are fewer economic opportunities and the work that is available is more likely to be of poor quality and insecure. In this context, an increase in the State Pension age will be felt very unevenly. People in ill-health or with caring responsibilities, and without access to savings will find it much harder to bridge the gap created by increasing the State Pension age. (Conclusion, Paragraph 47) 62

We welcome the Minister’s statement that it is possible to take both fiscal constraints and the consequences of State Pension age increases seriously. We acknowledge that he takes responsibility for the increase to 67, a policy he inherited, and which is happening now. Also welcome is the government’s emphasis on balancing fairness and sustainability in the terms of reference for the third independent State Pension age review. (Conclusion, Paragraph 48)

The government must: • confirm that a core task for the Secretary of State’s State Pension age review, due by March 2029, will be to consider those groups on whom State Pension age increases have a disproportionately negative impact and the measures that are needed to mitigate that; and • publish the report of the third independent State Pension age review by July 2026, so that there can be public debate and critical evaluation of the findings and proposed recommendations before final decisions are made. (Recommendation, Paragraph 49) The transition to State Pension age

We agree with the Minister that it is important to consider the distributional effects of State Pension age increases. The results are felt unevenly. We know that the last increase resulted in a more than doubling of poverty for 65-year-olds. The Minister told us that the government’s approach to the increase to 67 was focused on communication and supporting later working. However, he had no data to show that this would be effective in preventing a similar increase in poverty this time around. The fact that those affected will be a year older, leads us to fear that the impact may be even greater this time. (Conclusion, Paragraph 59)

A further effect of the rise from 65 to 66 was an increase in employment, with the largest effects for those with the lowest educational attainment and those living in the most deprived areas. We were concerned to hear that, while later working is generally good for health when it is voluntary, this is not the case when it is due to financial necessity, particularly for people having to continue to in physically demanding jobs. In addition, almost a quarter (24%) of the poorest pre-pensioners were working while frail or pre-frail and so vulnerable to significant deterioration in their physical and cognitive functioning. (Conclusion, Paragraph 60)

In response to this report, the department should commission research on the health impacts of later working from the State Pension age increase from 65 to 66. (Recommendation, Paragraph 61) 63

The Minister for Pensions explained that the department’s plans to support the transition to State Pension age for the rise to 67 was to support older workers in the labour market, through initiatives such as WorkWell, Pathways to Work and the Mayfield Review. He did not have data on the likely impact of such measures. Since the impact assessments in 2011 and 2013, we have seen the emergence of new challenges, particularly an increase in work-limiting health conditions, so experience may not be a good guide. (Conclusion, Paragraph 70)

We heard that many older workers struggle to continue in demanding jobs, sometimes to the detriment of their health. The ‘double jeopardy’ of ageism and disablism may mean they hesitate to request support and if they leave one job, may struggle to find another. For unpaid carers, the demands of that role can lead to them exiting employment in their fifties, and increasingly so from age 60. Adult social care, which could provide much- needed support, is not always available. (Conclusion, Paragraph 71)

We acknowledge government initiatives to address these challenges, including the Mayfield Review. However, as the Second Pensions Commission concluded, success will require a concerted effort across government and industry. We welcome the Minister for Pensions’ recognition that a cross- government approach is needed. This will take time and come too late for many affected by the rise in State Pension age to 67. Furthermore, to be effective in improving work and retirement outcomes, such interventions probably need to reach people in their fifties. (Conclusion, Paragraph 72)

Based on the evidence we have received, there is a clear justification for providing additional social security support for those unable to keep working in the years approaching State Pension age. While pension age rises have been justified on grounds of fairness between generations— each generation should expect to spend a similar proportion of adult life contributing to and receiving the State Pension—fairness within generations is also important. As things stand, the impact is very uneven. People who are unable to keep working, often due to ill-health, disability or caring responsibilities, will have to wait another year for their State Pension. For many, this will be a year of hardship, on inadequate working age benefits, potentially depleting savings they were relying on to support them in retirement. Once they get their State Pension, they are likely to receive it for a shorter time than their wealthier counterparts. This is a direct and foreseeable impact of State Pension age policy, for which the government is responsible and which it should act to prevent. (Conclusion, Paragraph 78)

We agree with the Minister that there are consequences to State Pension age increases which can, and should, be taken seriously. There is evidence that the longer wait for their State Pension will harm 66-year-olds unable 64 to keep working till 67. Government support for the transition must include introducing additional social security support for people unable to keep working to State Pension age. (Conclusion, Paragraph 89)

We heard widespread support for this but less consensus on what form it should take. On balance we support increasing the level of Universal Credit (UC) for all recipients in the year before State Pension age because it has a greater impact in reducing poverty and hardship. We recommend it as a short-term approach, to mitigate the impact of the increase to 67, which has already started. We propose using UC on the basis that it should enable support to be provided quickly. We recognise that the impact on work incentives is a consideration. However, the proposal is for a modest increase in support in the year before State Pension age. Those out of the labour market at this point in their lives are very unlikely to return to it. In our view, the overriding priority must be to reduce the hardship that would otherwise be a predictable result of government policy. (Conclusion, Paragraph 90)

We are disappointed that the Minister seemed disinclined to consider specific additional support to pre-pensioners. We are also disappointed at the lack of evidence-based policy-making that has been driving this and policy making more generally in the DWP. We recommend that the government think again and, as a minimum, consult on the proposal for an uplift in the level of UC in the year before State Pension age with the aim of introducing additional support by the end of 2026. As part of this, it should: explain how it thinks conditionality rules should apply in the year before SPA; and produce its own assessment of the impact and overall costs. (Recommendation, Paragraph 91)

We acknowledge that this proposal would not go far enough to improve health outcomes for people who have had to leave work due to ill-health or caring responsibilities in their mid-60s. We should not be in this position. If the government had acted on the recommendation in our 2025 Pensioner Poverty report to update the impact assessment, this would have focused minds earlier on what was needed. (Conclusion, Paragraph 92)

The Secretary of State’s own State Pension age review should consult on a longer-term approach to additional social security support for those unable to work to State Pension age. This should model the costs and benefits of different options, taking account of factors such as work incentives and the ‘downstream’ impact on demand for health and social care services. We suggest that the options for consultation could include: • Increased levels of UC for a period of three years, for those unable to work up to State Pension age due to ill-health, disability or caring responsibilities; and 65 • Phased increases in the UC standard allowance from age 60 to reach the level of the Pension Credit Guarantee at State Pension age. (Recommendation, Paragraph 93)

It is concerning that people approaching State Pension age may need to draw on their pension savings to bridge the gap before they get their State Pension, rather than those savings being available into old age. There is a worrying lack of data to help understand the decisions those pre-pensioners on the lowest incomes are taking and the impact on their income in retirement. (Conclusion, Paragraph 100)

DWP should commission research on: the extent of pension and non- pension savings held by pre-pensioners on Universal Credit and how they are drawing on them; and the extent to which pre-pensioners who are eligible for Universal Credit are not claiming it and the reasons for this. (Recommendation, Paragraph 101) Government decision-making

The 2011 and 2013 impact assessments of the increase to 67 are outdated and insufficient. They do not reflect recent increases in work-limiting ill- health or deepening inequality in healthy life expectancy. The previous government decided to proceed with the increase in 2023 but said it would keep the position of people unable to continue in work under review. No official review had been conducted by the 2024 general election. The current government does not plan to do its own evaluation until after the increase is complete in April 2028. This means there is a significant gap in the government’s understanding of the impact and that an opportunity to consider what action should be taken has been missed. This is poor policymaking. (Conclusion, Paragraph 108)

The Secretary of State should make a statement confirming that healthy life expectancy is a relevant factor for State Pension age reviews under section 27 of the Pensions Act 2014. (Recommendation, Paragraph 109)

We welcome the undertaking that the Secretary of State will take a broad and holistic approach to assessing the impact of State Pension age rises in his own review, due by March 2029. If this undertaking is met it will be an improvement on past practice and approaches. It will also be a demonstration of the culture change that we have said is badly needed in the Department. (Conclusion, Paragraph 112)

The government should explain how it will take a holistic approach to assessing the impact of State Pension age increases in future. This should include its plans to: 66 • take into account the views of pensioners; • consult the Chief Medical Advisor on health impacts; • invest in more granular, accurate cohort data on life expectancy; • estimate the likely increase in poverty rates in time to take action to mitigate this before the increase happens. (Recommendation, Paragraph 113)

State Pension age rises risk exacerbating existing inequalities in health and lifetime earnings. This should be reflected in impact assessments on State Pension age rises but is not. (Conclusion, Paragraph 116)

The department should consider how to take account of the cumulative impact of policies on individuals in its assessment of State Pension age rises; for example, whether it will base its assessment on longitudinal data reflecting differences in factors such as employment history, occupational class, health status, caring history, income decile and protected characteristics. (Recommendation, Paragraph 117)

We welcome the Minister’s recognition that the different parts of government—including DWP and the NHS—are ‘in this together.’ As we said in our Pensioner Poverty report, a whole system approach to prevention is needed if the government is to achieve its goal of building a health and social care system that is sustainable for future generations. (Conclusion, Paragraph 123)

In response to this report, the department should explain: whether it accepts that pre-pensioner and pensioner poverty have a downstream impact, for example, on demand for health and social care services; how it will reflect this in its impact assessments and what discussions it has had with HM Treasury to ensure that its policies and its approach to managing spending take the fullest account possible of downstream effects. (Recommendation, Paragraph 124) Other changes

We remain concerned about the impact of the mixed age couple rule. There are gaps in our understanding of its impact on the living standards and health of the 70,000 households affected and how this might change as the State Pension age rises to 67. (Conclusion, Paragraph 129)

More than 15 years on from its introduction, the government should commission and publish analysis of the impact of the mixed age couple rule on those affected and how this will change as the State Pension age rises to 67. This analysis should include: their risk of poverty; the 67 impact on their health and wellbeing; the extent to which they take up the elements in Universal Credit for which they are eligible, including for caring responsibilities, ill-health and disability. (Recommendation, Paragraph 130)

The Crisis and Resilience Fund could play a vital role in targeting additional support at Universal Credit claimants affected by the increase to 67. However, as things stand, local authorities have access to only 35 to 40% of the data, leaving a visibility gap in relation to some 60% of Universal Credit recipients. (Conclusion, Paragraph 133)

The government should confirm that it has committed the resources needed to deliver on plans for a wider Universal Credit data share with local authorities in 2027. It should publish regular updates on progress. (Recommendation, Paragraph 134)

We are concerned to hear that around one in five of those with a State Pension age of 67 may not have accurate awareness of this in time to make informed decisions about their retirement. We are also concerned at evidence that awareness is lower for certain groups—women, people with lower qualifications or lower levels of wealth, the self-employed and people not in paid work—many of whom are likely to be disproportionately affected by the rise. DWP has recent experience of what can go wrong when changes such as these are not well communicated. It is therefore disappointing that this element, which the Minister said has been their focus, is not achieving more impact. The department should have learned lessons but has yet to implement the action plan it has developed with the Parliamentary and Health Service Ombudsman. (Conclusion, Paragraph 141)

DWP should commission research to find out more about these low levels of awareness and whether there are practical steps that it could take to improve outcomes (for example, in relation to benefit take-up). (Recommendation, Paragraph 142)

We are concerned that some individuals will have received inflated State Pension forecasts because these did not show deductions for contracting out. Some of them may have lost the opportunity to do things differently, for example, to continue working for longer or to save more. Individuals are asked to take responsibility to save for retirement and it is essential that the government plays its part by communicating accurately and in a timely manner. It is deeply concerning to find another instance where the department’s communications appear to have fallen short. (Conclusion, Paragraph 143)

We recommend that DWP report on the decisions which led to some people receiving inflated State Pension forecasts, what it has learned from this and the actions it will take to prevent a repetition. The report should also set out how many people were affected by the error, its plans for compensation and 68 how it will communicate these to affected individuals. In its response to this report the department should set out a clear timetable for completing these actions. (Recommendation, Paragraph 144)

It is vital that the Department develop a culture of learning from its mistakes. Indications that it has not yet done that include the Department’s response to the Parliamentary and Health Service Ombudsman’s recommendations on 1950s women, repeated problems with communications about changes to the State Pension and the delay in progressing the action plan. (Conclusion, Paragraph 150)

In response to this report, the Department should set out how it will work in partnership with the Parliamentary and Health Service Ombudsman to implement the action plan and to monitor and evaluate its effectiveness. This should include which elements of the action plan will ensure effective administration of the current State Pension age increase. (Recommendation, Paragraph 151) 69