Written evidence submitted by Understanding Society, the UK Household Longitudinal Study, University of Essex PPCM0023

1. Introduction

1.1. Understanding Society, the UK Household Longitudinal Study, is a world-leading longitudinal survey of continuity and change in UK life. From an initial sample of around 40,000 households, the same people are invited to participate in annual surveys. Together with its predecessor, the British Household Panel Survey, the data now span 32 years. Understanding Society is based at the Institute for Social and Economic Research at the University of Essex. It is an important part of CLOSER, a partnership of leading social and biomedical longitudinal population studies in the UK (www.closer.ac.uk).

1.2. Understanding Society is primarily funded by the Economic and Social Research Council, part of UK Research and Innovation, and receives funding or support from a number of government departments, devolved administrations and agencies. Anonymised data from the survey are made available to registered researchers from across academic, government, charities, think tanks and business to use in their own research.

1.3. Our evidence relates specifically to research using Understanding Society data, and is relevant to the Committee’s questions:

What is the state of pensioner poverty across the UK? Which groups are most likely to be affected?
To what extent does the current State Pension and other pension age benefits prevent pensioner poverty?

2. Summary

Almost 20% of pensioners were living in poverty before the cost of living crisis.
Increasing take-up of Pension Credit among those eligible would reduce poverty significantly.
As many as 10% of pensioners are in persistent poverty.
Those who live alone, those who don’t own their own home, and Black pensioners are most at risk of persistent poverty.
A reduction in social benefit income is strongly linked to entering poverty.
Nearly 7 in 10 retirees have incomes below the target income replacement rate recommended by the Pensions Commission.
Future generations may experience less poverty as more see the benefits of automatic pension enrolment when they retire.
However, more people living in rented accommodation in retirement could see a larger slice of their pension taken up by housing costs.

3. Pensioner poverty across the UK

3.1 Nearly one in five pensioners were living in poverty between 2010 and 2019 – a figure which was rising at a time when poverty in the overall population was relatively stable, and was calculated before the cost of living crisis began in 2022.

3.2 If everyone who was eligible received Pension Credit, 440,000 older people would be lifted out of poverty, and the number of people living in severe poverty would be reduced by half.

3.3 The Social Metrics Commission says 700,000 pension-age adults (4% of the total) are in persistent poverty – that is, in poverty in the current year (or most recent year measured), and also in poverty for two of the previous three years.

3.4 Other research indicates that 10% of pensioners are in persistent poverty. 17% of single male pensioners are in persistent poverty, 18% of single female pensioners, and 6% of couple pensioners.

3.5 Scottish Government figures say that between 2018 and 2022, 9% of pensioners in Scotland were in persistent poverty after housing costs compared to 11% in the previous period.

3.6 Around 16% of people of pension age who died in the UK in 2023 died in poverty. Over 20% of people who died in 2022 died in fuel poverty – at least 128,000 people in all, including 110,000 pensioners.

3.7 15.5% of White people of pension age were in poverty in the last year of their life, but this figure was significantly higher for those from minorities: 31.5% of Black people of pension age, 27.1% of Asians, and 27.2% of those from mixed/other ethnicities.

4. Which groups are most affected?

4.1 Two in five older people (40%) spent at least a year in poverty between 2010 and 2019. One in ten (10%) spent four to six years in poverty, and as many as one in twenty (6%) pensioners spent more than seven years in poverty.

4.2 Pensioners who lived alone were especially affected – with 11% of single women and 9% of single men spending seven or more years in poverty.

4.3 Those who didn’t own their own homes were also disproportionately affected. 19% of social renters and 25% of private renters experienced this length of time in poverty over the decade, compared to 3% of those who owned their home outright, and 2% of those still paying off a mortgage.

4.4 Black pensioners were also at higher risk. 60% of all pensioners experienced no years in poverty, but this was only true of 26% of Black pensioners (although this was a small sample size).

4.5 Looking at movement in and out of poverty, 4% of pensioners enter poverty from one year to the next – with single women (6%), Asian pensioners (11%) and social and private renters (9%, 8%) at greater risk.

4.6 About 5% of pensioners move out of poverty from one year to the next, with single women (7%) and Asian pensioners (11%) having a greater chance of this happening.

4.7 Overall, 11% of pensioners remained in poverty from one year to the next. Pensioners at increased risk of staying in poverty were:

Single (women 19%, men 16%)
Black (26%)
Renters (social 28%, private 37%)

5. State pension and other income

5.1 Of those who enter poverty, 61% experienced a reduction in social benefit income, 27% saw a reduction in private income, and 21% had their housing costs increased. The average decrease in social benefit income for a couple who enter poverty is £542 a month.

5.2 For those who exit poverty, 70% experienced an increase in their social benefits, 42% had an increase in private income, and around one in 10 either increased their labour income (10%) or saw their housing costs decrease (9%).

5.3 In recent decades, retirees have tended to have incomes well below target replacement rates – that is, the percentage of an individual’s annual employment income that is replaced by retirement income when they retire.

5.4 Nearly 7 in 10 (68%) retirees had replacement rates below the target recommended by the Pensions Commission. This shortfall is observed across all income groups other than the lowest earners.

5.5 More than half (61%) of people in the second-lowest income group before retirement (labour income of £17,700 to £32,599 in 2024 terms) had post-retirement incomes below the Commission’s recommended target replacement rate.

5.6 Eight in 10 people in the middle-income group (labour income of £32,600 to £46,599) and the second highest income group (labour income of £46,600 to £74,599) had incomes below the Commission’s target replacement rates.

5.7 Only four in 10 (39%) of individuals in the lowest income group before retirement had incomes below the Commission’s target replacement rate of 80%.

5.8 Earlier research shows that private pension income is the major driver of net household income differences for recent retirees. State benefits are a little higher for those in the bottom half of the distribution but the gap is relatively modest, and much smaller than the one which exists in the opposite direction in relation to private pension income.

5.9 Private pension income is a much larger component of men’s post retirement income than it is women’s. In addition, growth over recent cohorts has been much stronger for men – an increase of 106% between the 1927-29 and 1945-47 cohorts, compared to 61% for women. State benefit income has stayed flat in relation to earnings for men, but has risen by nearly one-fifth (18%) for women.

5.10 Somewhere around one-fifth of younger retirees fell below the Minimum Income Standard – the amount of money required to achieve a socially acceptable standard of living.

6. Auto-enrolment

6.1 Research published by Nest Insight suggests that National Employment Savings Trust (Nest) pension savers typically have slightly lower income, and lower levels of education, and are less likely to own a home (outright or via a mortgage) compared to people of working age who are employed.

6.2 Automatic enrolment into workplace pensions began in 2012, and was phased in by 2018, so on average future generations may be affected less by poverty, as more people see the benefits of automatic pension enrolment when they retire. However, alongside this trend, the decline or delay in home ownership, with more people living in the private rental sector in their retirement, could pose new challenges in tackling pensioner poverty if a larger slice of their earning is taken up by housing costs.

References

3.1-3.2

Matt Barnes, Longer-term pensioner poverty and poverty transitions: A quantitative analysis of the Understanding Society survey, Independent Age/City, University of London, January 2022: https://www.independentage.org/longer-term-pensioner-poverty-and-poverty-transitions-a-quantitative-analysis-of-understanding

3.3

Measuring Poverty 2023, Social Metrics Commission, December 2023: https://socialmetricscommission.org.uk/social-metrics-commission-2023-report/

3.4

Joseph Rowntree Foundation, UK Poverty 2023, January 2023: https://www.jrf.org.uk/uk-poverty-2023-the-essential-guide-to-understanding-poverty-in-the-uk

3.5

Scottish Government, Persistent Poverty in Scotland 2010-2022, March 2024: https://data.gov.scot/poverty/persistent.html#Persistent_poverty

3.6-3.7

Dying in Poverty 2024, Exploring poverty and fuel poverty at the end of life in the UK, Marie Curie, November 2024: https://www.mariecurie.org.uk/policy/poverty

5.1-5.2

5.3-5.7

Molly Broome, Ian Mulheirn, Perfectly adequate? Revisiting pensions adequacy 20 years after the Pensions Commission, Resolution Foundation, October 2024: https://www.resolutionfoundation.org/publications/perfectly-adequate/

5.8-5.10

David Finch, Laura Gardiner, As good as it gets? The adequacy of retirement income for current and future generations of pensioners, Resolution Foundation, November 2017: https://www.resolutionfoundation.org/publications/as-good-as-it-gets-the-adequacy-of-retirement-income-for-current-and-future-generations-of-pensioners/

6.1

Christopher Firth, John Gathergood and Jesal Sheth, University of Nottingham; Neil Stewart, Warwick Business School, University of Warwick, How does pension automatic enrolment affect savings?, National Employment Savings Trust Corporation, August 2024: https://www.nestinsight.org.uk/wp-content/uploads/2024/08/How-does-pensions-automatic-enrolment-affect-savings.pdf

January 2025