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Rise in UK state pension age drives record employment among 65-year-olds

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The latest increase in the UK state pension age has led to record highs in employment among 65-year-olds, while also prompting those living in poorer areas to work for longer.

Research by the Institute for Fiscal Studies, published on Tuesday, found that around 55,000 more 65-year-olds were in paid work in 2021 as a result of the gradual rise in the pension age, from 65 to 66, between late 2018 and late 2020.

The reform led to an additional 7 per cent of men and 9 per cent of women staying in work, taking the male employment rate at age 65 to 42 per cent — the highest since the 1970s. The female employment rate rose to a probable all-time peak of 31 per cent.

Emily Andrews, deputy director for evidence at the Centre for Ageing Better, the charity that funded the research, said it showed the higher pension age had been “an effective policy for extended working lives among the employed”.

However, the research also contained several warning signs for policymakers as they prepare for the pension age to rise to 67 from 2026 and as an independent review starts to consider the case for further increases to manage the fiscal pressures of an ageing population.

First, people living in poorer areas were much more likely to remain in work while waiting to become eligible for the state pension. After the change, the employment rate in the fifth most deprived local areas rose by 13 percentage points for women and 10 percentage points for men — compared with respective increases of just 4 and 5 percentage points in the fifth most prosperous areas.

Renters tended to stay in work more than homeowners, and those without qualifications were more likely to do so than those with a university education, the research showed, suggesting that financial necessity was driving their decisions.

Most of those who delayed retirement were likely to be better off financially as a result, even if they would have preferred to stop working earlier and have more leisure time, the IFS said. That was because they were predominantly working full-time, earning more than the lost pension income.

Jonathan Cribb, an associate director at the IFS, said this suggested there was “an unmet desire for many approaching state pension age to be able to work part-time, or more flexibly, than they are currently doing”.

More than 90 per cent of those affected by the rise in the pension age did not change their retirement plans, the IFS said. A majority still retire before the age of 65, either because of health problems or because they can afford to, while a significant minority choose to work for longer.

But a smaller group — including 5,000 who were unemployed and 25,000 who were unable to work for health reasons — had been particularly badly hit, the IFS said, because they were eligible for much less help through the benefits system than they would have been if eligible for the state pension.

Andrews said this pointed to the need for the government to “get serious about meaningful support to help workless people in their 60s get back into paid work”, so that further rises in the pension age did not “further harm those who are already disadvantaged by an ageist labour market”.

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