Increases to the state pension age are planned from 2028 but the IFS is urging the government to implement a new benefit for people near pension age.
The IFS is urging government to implement a new benefit for people near state pension age (Image: Getty)
Sweeping changes could be made to the state pension in future as the country battles the rising cost of the welfare state, according to expert think tank the Institute for Fiscal Studies.
One such change the IFS has proposed in its recommendations to government in its Pensions Review published this week is the introduction of a ‘means tested’ benefit for people aged over 66. The IFS has now set out a plan for how to deal with state pension age rises that it says the government should take up. It is calling on the government to introduce a new benefit to be given to people who are one year away from reaching state pension age, to help deal with having their state pension age delayed as the state pension age rises.
The next state pension age rise is due in 2028, when it rises to 67 for both men and women.
The IFS says: “There is a case for enhancing the working-age means-tested benefit system, especially as the state pension age continues to rise.
“We therefore propose additional means-tested support for those within a year of their state pension age, i.e. those aged 66 from 2028 onwards.
“This support could either be offered to everyone with low incomes and assets (those receiving Universal Credit) or targeted only to those with low incomes and assets who are also receiving health related benefits (alongside Universal Credit).”
Although the IFS says this would cost between £200M to £600M a year to implement, it adds that it can help maintain ‘support’ for state pension age rises.
The report adds: “However, these kind of mitigation measures can play an important role in helping groups that are most harmed by a higher state pension age, as well as in maintaining political and public support for state pension age increases (which significantly increase employment).
“The public finance costs are a small fraction of the approximately £6 billion annual saving from increasing the state pension age by a year. And to the extent to which such mitigation boosts public support for increases in the state pension age, it might make such increases more likely to be successfully implemented.”
The IFS report also set out that the Triple Lock should be axed and replaced with a new ‘4 point guarantee’, which would link the state pension’s annual increases to a percentage of full-time earnings instead of automatically increasing by the current three factors.
