A rising State Pension age will leave people who are out of work due to ill health at greater risk of poverty and worsening health

Introduction

The existing policy approach to increasing State Pension age in the UK, alongside a lack of action to address the relatively high numbers of people out of the labour market due to ill health, risks pushing more people into hardship. The State Pension and Pension Credit provide a relatively effective safety net for pensioners compared with working-age support. The Universal Credit standard allowance for a single working-age person aged 25 years or older is equivalent to £85 per week, rising to £174 per week for those deemed unable to work due to ill health. This compares to £201 per week for a single person on Pension Credit. Pension Credit gives you extra money to help with your living costs if you’re over State Pension age and on a low income. It brings your weekly income up to a minimum amount of £201. However, we are losing sight of a group of people with ill health, without work and approaching State Pension age. This ‘lost cohort’ are at risk of poverty, hardship and a consequential worsening of their health. People reaching State Pension age from April 2026 will have up to an extra year’s wait to receive their State Pension due to the gradual increase of State Pension age from April 2026 to 67 years of age by 2028.

There has been a sustained rise in the number of people who have left the labour market due to ill health since the pandemic began. While there are signs that some who entered early retirement or took time out of work for caring responsibilities have re-entered the workforce, around 400,000 additional people report that they are not working, or looking for work, due to long-term sickness or disability. This comes at a time when the number of people aged 20–69 years living with major illness in England is projected to grow by 15% between 2019 and 2030.

There are clear consequences for the economy, with the Office for Budget Responsibility estimating that this has led to a net fiscal cost of almost £16bn a year due to lost revenues and increased benefit payments. But this is not just a burden for the economy. There are real and stark consequences for people affected and experiencing poor health.

Employment is a key determinant of health – being out of work can negatively affect a person’s health. It is also a key source of income, with those who leave work at risk of falling into poverty. People out of work due to poor heath could be missing out on essential building blocks of good health – such as access to healthy food and quality housing. 

Yet policy action is failing to keep up. If anything, it is set to exacerbate existing health inequalities – particularly when expectations of how long people should rely on earned income are set to be extended by the coming rise in State Pension age to 67 years of age from April 2026.  

The majority of people out of the labour market due to poor health are yet to reach State Pension age

The number of people who have left the labour market – or are economically inactive – who are neither in work nor actively seeking work has risen since the start of the pandemic. Figure 1 shows that between Q1 2020 and Q1 2023, a net additional 430,000 people reported long-term sickness or disability as the main reason for being out of the labour market – the single most reported reason.

Recent reductions in the number of people who are economically inactive have been among those reporting early retirement or caring responsibilities. The total number of people aged 16–65 years who are economically inactive due to ill health has remained high, with 2.6 million in Q1 2023.

Historically, people who leave the labour market due to sickness in their 50s are far more likely to never work again than to re-enter the labour market. Yet since Q1 2020, an additional 235,000 people currently aged between 53 and 62 years and due to have a higher State Pension age from April 2026 are already out of work, reporting long-term sickness as their main reason.

This is a 34% increase in the number of people in this cohort approaching State Pension age who are economically inactive due to long-term sickness. For an equivalent cohort prior to the pandemic, between Q1 2016 and Q1 2019, only 15,000 people became economically inactive due to long-term sickness, or a 2% increase.  

This matters not only because ill health is acting as a constraint to labour supply - when one of the key aims of a higher State Pension age is to extend working life - but because of the consequences for the individual.

While the previous increase in State Pension age for women from 60 to 65 years – to equalise with that of men – appears to have supported higher employment rates, for some, a higher State Pension age could have significant negative consequences. People who are unable to work may spend longer without employment. Unless they have sufficient private pension income or savings, they are at risk of either falling into poverty or living in poverty for longer. There are now more people economically inactive in the years before State Pension age, and many will have to wait an additional year before being able to access government support for pensioners.

There are significant differences in the generosity of state support for pensioners (Pension Credit rates are £201 per week for a single pensioner) compared with people of working age (equivalent of £85 per week for a single person aged 25 years and older on Universal Credit, rising to £174 per week for those deemed unable to work due to ill health). 92% of those economically inactive due to ill health who are on Universal Credit are also receiving the limited capability for work element. Recent IFS analysis highlighted an increase in poverty among those who were economically inactive during the first year of the pandemic. It also showed that even before the pandemic, recently economically inactive people have been increasingly less likely to be above State Pension age or have a private pension. Those with ill health who live in poverty for longer are at risk of a further deterioration in their health.

Ill health in the working-age population has risen and expectations of longevity are downgraded

Underlying the rise in economic inactivity is a longer term increase in the proportion of the working-age population with ill health. 19% of the working-age population now report that they have a work-limiting health condition, compared with 15% in 2013 – an increase of almost a third (30%) – affecting how many people are able to participate in the labour market. Projections suggest that this is only set to continue growing over the coming decade, with the number of people aged 20–69 years living with a major illness in England alone projected to increase from 3 million in 2019 to 3.5 million by 2030.

Over a similar period, improvements in mortality have stalled, leading to a downgrading of how long people are expected to live. Figure 2 shows that cohort life expectancy projections improved between 1992- and 2008-based estimates but have since been revised down.

Under 2008-based cohort life expectancy projections, a man aged 65 years in 2023 was expected to live on average 22.7 additional years. Under 2020-based assumptions, this has reduced to 20.0 years, a fall of 2.7 years and lower than expected under 2002-based estimates.

Future cohorts are still expected to live for longer than previous cohorts, but not as long as previously expected. For some, this means that not only are their lifespans now expected to be shorter, but they are at risk of spending a greater share of their lives in poverty and worsening health.

The risk of living shorter, poorer and less healthy lives varies by where people live

The population’s health is heavily patterned by geography, with the implication that some areas have a greater share of the population in this at-risk group. The challenge of meeting the government’s ambitions to improve healthy life expectancy by 5 years and reduce health inequalities by 2035 is at risk of becoming more difficult.

With the government’s commitment to levelling up, it is important to consider whether people within a given cohort might be disproportionally affected. There are wide inequalities in life expectancy within the UK, with some people not living long enough to reach State Pension age or live for long beyond it.

While neither projections nor cohort estimates of life expectancy are available beyond the UK country level, it is possible to compare life expectancy for different geographical areas in the UK on a period measure of life expectancy. The variation in period life expectancy for different parts of the population can be used to understand likely variation in lifespans between different parts of the population.

Figure 3 shows life expectancy trends at age 65 years in regions of the UK split by the 20% most and least deprived local areas between 2010–12 and 2017–19.

While overall changes in life expectancy were small, some clear trends stand out. In the decade prior to the pandemic:

• male life expectancy improved in both the least and most deprived areas in London, the East Midlands, West Midlands and Northern Ireland, but life expectancy in the most deprived areas in the east of England, North East, Yorkshire and the Humber, Scotland and Wales deteriorated relative to the least deprived areas.
• female life expectancy improved in both the least and most deprived areas in London, the South West and West Midlands and remained the same in Northern Ireland; the relative gap between the two grew in all other areas. Life expectancy in the most deprived areas of some regions fell, including in Scotland and the East Midlands.

This shows that for many people in the UK across a number of regions, mortality rate improvements have not been keeping pace with the average or with those of people living in less deprived areas. In many instances, mortality rates have actually worsened. People living in some of the most deprived areas in Scotland, the North East, East Midlands and Yorkshire and the Humber are at risk of being particularly disadvantaged by the combination of poorer health, lower employment and the coming rise in State Pension age.

The likelihood of being out of the labour market due to poor health is greater and has deteriorated in some local areas

As with health, labour force participation levels vary significantly across local areas in the UK. In Blackpool, the rate of economic inactivity due to ill health is the highest in England at 8.2% compared with a low of 1.7% in Wokingham.

Figure 4, using the latest census data, shows that the rate of economic inactivity due to long-term sickness has risen slightly across England and Wales as a whole since 2011.

Some local authorities in England and Wales have had significantly higher increases in economic inactivity due to ill health than others, including Suffolk and North Northamptonshire (both +0.7 percentage points). Areas including Blackpool, Hartlepool, Redcar and Cleveland and Gateshead had both initially higher rates of economic inactivity due to long-term sickness and higher than average increases.

This highlights two issues. It suggests that some local areas have a greater share of the population unable to remain in work until State Pension age due to ill health, so those areas will be affected differently to others. It also suggests that some areas have fallen behind others in relation to labour force participation due to ill health and are likely to require more resources to reverse the trend. These existing inequalities are likely to be exacerbated by the near-term rise in State Pension age.

A lack of government action risks exacerbating inequalities

The Spring Budget 2023 failed to go far enough in providing better support to help people back in to work who had left the labour market due to ill health. The spend committed to boosting labour supply was overwhelmingly focused on reducing the cost of childcare and financial incentives for some of the highest earners. These actions are expected to have a limited impact for people unable to work due to long-term health conditions due to both their scale and pace of implementation.

The sustained nature of the increase in economic inactivity due to ill health among people approaching State Pension age has not been recognised, with the last State Pension age review arriving at a time when focus was on voluntary early retirement. Employment and life expectancy trends suggest that people living in some regions of the UK and in more deprived areas will be disproportionately affected by the coming rise in State Pension age to 67 years by 2028.

It is not too late – government can still take action now to provide financial support to those unable to work and at risk of living in poverty. At a minimum, Pension Credit levels of income support can be provided to people aged 66 years who are unable to work due to poor health from April 2026. Government should also explore additional financial support for people approaching State Pension age in the rest of this financial year.

There is also a need to accelerate and scale up plans to improve employment support programmes and schemes such as Individual and Placement Support services. Access to employment support should be available on a voluntary basis to anyone with ill health on Universal Credit. Government plans to tighten the work capability assessment may be counterproductive, leaving people in ill health on the lowest rates of Universal Credit, further increasing their risk of falling into poverty. Instead, people in ill health should be provided a stable income from which they might focus on moving back into work. Longer term, a cross-sectoral approach is needed to help maintain people’s health, including working with employers to keep people in work for longer. It is only by taking this kind of concerted and sustained action that the current issues faced by cohorts approaching State Pension age will be avoided in future.