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The Actuary The magazine of the Institute & Faculty of Actuaries

State pension age rise to exacerbate social inequality

The UK’s rising state pension age has “significant potential” to exacerbate social inequalities, with women and low-income workers likely to be among the hardest hit.

Risk of creating new inequalities ©iStock
Risk of creating new inequalities ©iStock

That is according to a new report from the International Longevity Centre UK (ICL), which highlights how the most affluent in society are best prepared for pension age hikes.

However, it is thought that forcing disadvantaged workers to retire later could lead to involuntary early labour market exits due to their greater health and care needs.

And because women currently undertake most domestic work and unpaid care, there is a chance they could struggle to reconcile their caring responsibilities will longer working lives.

“Increasing pension age in line with life expectancy is a very blunt instrument that exacerbates inequality and particularly harms older women,” Sheffield University’s professor Alan Walker, said.

The researchers said women with lower education levels could lose up to 25% of their monthly pension entitlements thanks to the rising state pension age and a move to contribution-based schemes.

But after comparing pension reforms across five countries, they found that other nations have changed the state pension age without exacerbating social inequalities to the same extent as the UK.

Systems with a strong, reliable basic pension that does not rely on contributions showed a less pronounced rise in social inequalities when increasing the state pension age.

The ILC is now asking the government to draw on examples from other countries to reduce the risk of social inequalities when pension ages are adjusted in line with longevity increases. 

It also called for greater support of workers’ health and wellbeing through job and retirement flexibility, as well as support in the management of illnesses and caring responsibilities.  

“There is a need for wider approaches to encourage work in later life beyond reforms to pensions, including measures to address health and wellbeing at work, to tackle age discrimination in the workplace, and to support those juggling work and caring," ILC senior research fellow, Dr Brian Beach, said.

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