Middle-income 60 to 74 year olds have total incomes more than 60% higher than the similar group in the mid-1990s, with earned income rising by 160% for this group as a whole. Employment rates for older men and women are likely to continue rising as life expectancy increases and subsequent generations have less generous pensions to rely on.

But the gap in basic benefit levels for those just below and just above the state pension age has risen from 30% to nearly 130% in the last twenty years. This may not be sustainable as the state pension age continues to rise.

These are two key messages from the third 'IFS at 50' anniversary talk, to be given tonight by Carl Emmerson, Deputy Director of the IFS, on the topic of 'The Future of Income in Retirement'.

He will say:

“The incomes of middle income 60 to 74 year olds are now much higher than they were in the mid-1990s as private pensions and earnings have grown. Future generations may actually end up with lower private pensions. But there is much capacity for employment rates of older individuals to rise further: for example employment rates of men aged 60 to 64, which have been increasing since the mid-1990s, are still well below the rates seen in the 1970s when life expectancy was much lower and health less good.”

But he will highlight that policymakers ought to consider doing more to support those who are unable to respond to a rising state pension age by retiring later:

“Pushing up the state pension age as longevity increases makes sense. But there is a large – and growing – difference in support that the state makes available to low income households who are just below the state pension age and those who are just above it. Such a big gap may look problematic in the context of a rising state pension age.”

Key points he will make are:

Rising longevity means that men now approaching 50 can expect to receive a state pension for ten years more than they would have done in the 1950s.

  • A 50 year old man in 1950 would, on average, have lived to age 73 giving him 8 years of state pension receipt from the then state pension age of 65. A man now approaching 50 might have to wait until 68 before receiving a state pension, but can expect to do so for 18 years as male life expectancy at age 50 has now risen to 86.
  • A 50 year old woman in 1950 would, on average, have lived to age 79 giving her 19 years of state pension receipt from the then state pension age of 60. A woman now approaching 50 might have to wait until 68 before receiving a state pension, but can expect to do so for 20 years as female life expectancy at age 50 has now risen to age 88.

Pensioners now have income (after housing costs) on average similar to those of non-pensioners after more than 20 years of faster income growth. They are now less likely to be poor than younger people.

Since the mid-1990s there has been strong growth in the incomes of middle income 60 to 74 year olds (averaging 2.2% per year). This reflects growth in state pension incomes (1.2%), stronger growth in private pension incomes (3.0%), and even stronger growth in earned income (4.3%).

Future generations may need to rely more on earnings into their 60s and early 70s as private and state pensions become less generous:

  • Employment rates of older men have been rising since the mid-1990s, but for 55 to 64 year olds they remain below the rates seen in the late 1970s. This is despite better health and fewer jobs requiring strenuous physical activity.
  • Employment rates of older women are now at record levels but remain below those of men. They are likely to rise as new cohorts of women who have spent more time in paid work reach their 60s and as a result of a higher state pension age.

The incomes of poorer households just below state pension age have fallen far behind those of poorer pensioners.

  • In 1999 the poorest fifth of the population who were within five years above the state pension age had an average income 17% higher than those who were within five years below the state pension age. By 2017 that gap had grown to 70%.
  • Policy has become much more generous to low income individuals who have reached the state pension age than those who are just below it. In 1990 the equivalent to Pension Credit (the main means-tested benefit for pensioners) was worth 30% more per week than the equivalent to Jobseeker’s Allowance (the out-of-work benefit for the unemployed) whereas that gap has now grown to 129%.