Written evidence submitted by the Department for Work and Pensions (PPCM0048)

  1. Ensuring that citizens have sufficient income in retirement is a key priority for this Government. For the population as a whole, our system of state and private pensions[1] provides the basis for security in retirement. For today’s pensioners, other benefits provide supplementary support for those on low incomes or who have additional disability needs. For future generations of pensioners, labour market interventions and auto-enrolment into workplace pensions help create the conditions for retirement saving, building on the foundation of the new State Pension. We are also carrying out a Pensions Review to boost the income of future pensioners and delivering pensions dashboards- an online service which will help people keep track of their pension savings and better prepare for retirement.

 

  1. These matters are, in most cases, reserved in Great Britain and transferred in Northern Ireland.[2] The evidence presented here therefore relates to Great Britain unless otherwise specified.

The State Pension

  1. The State Pension system is at the heart of the Government's approach, and it has undergone successive improvements to provide better support for pensioners. There are two contributory State Pension systems currently in payment which depend on when the individual reaches their State Pension age. State Pension entitlement can be built through a number of ways, including National Insurance contributions and National Insurance credits. There is a wide range of National Insurance credits supporting people to maximise their State Pension entitlement. The amount people receive under both systems varies according to their National Insurance record.

 

 

  1. The State Pension is increased annually as part of the Secretary of State’s statutory review of State Pension and benefit rates. The statutory requirement is to up-rate the basic and new State Pension at least in line with average earnings. However, the Government has committed to the Triple Lock for the entirety of this Parliament. The Triple Lock means that both the basic State Pension and the full rate of the new State Pension are increased each year by the highest of earnings growth, inflation or 2.5%.  As a result, over the course of this Parliament, the full yearly rate of the new State Pension is expected to increase by around £1,900. At the same time, the full yearly rate of basic State Pension is expected to increase by around £1,500.

 

  1. Whilst the State Pension provides the foundation, it is both state and private pensions together that provide the basis for security in retirement. In terms of coverage, nearly all pensioners (98%) were in receipt of the State Pension in FYE 2023 – and private pension income was received by 70% of pensioners in FYE 2023. The percentage of pensioners who are receiving both State Pension and one or both of occupational pension income or personal pension income is 69%, meaning the majority of the pensioner population is in receipt of multiple sources of income in retirement.[4]

Pension Credit & other pensioner benefits

  1. For those who have been unable to make sufficient provision for their retirement income, or have additional needs, other benefits may provide support.

Pension Credit

  1. Pension Credit provides extra money to help with living costs for people over State Pension age and on a low income. It is a non-taxable, non-contributory income-related benefit. The average award is worth around £82 a week – over £4,200 per year.

 

  1. Pension Credit tops up pensioners’ other income to a minimum level – the Standard Minimum Guarantee (SMG) – which is currently set at £218.15 a week for a single pensioner and £332.95 for a couple. This minimum level can be higher, with additional amounts added if the pensioner has caring responsibilities, is severely disabled or has certain housing costs, such as ground rent or service charges. The ‘Guarantee Credit’ component of Pension Credit (made up of the SMG and any additional amounts) provides the safety-net for low-income pensioners.

 

  1. Pensioners who reached State Pension age before the introduction of the new State Pension on 6 April 2016, can also be entitled to the ‘Savings Credit’ component of Pension Credit. Savings Credit provides an additional payment for pensioners with some modest retirement provision of their own.

 

  1. As an income-related benefit, capital over £10,000 is taken into account in the assessment of Pension Credit. For every £500 - or part thereof – over £10,000 an assumed income of £1 per is taken into account. Unlike with working age income-related benefits, there is no upper capital limit. The treatment of capital for Pension Credit is more generous than that in working age benefits because pensioners are considered much less likely to be able to earn income or replenish capital once it is spent.

 

  1. The current Pension Credit caseload (May 2024) is 1.35 million households with expenditure forecast to be £6 billion in 2024/25.

Pension Credit Take-up

  1. The estimated take-up rate of Pension Credit has remained largely stable since 2009/10 fluctuating between 61% and 66%. The most recent estimates, for 2022/23, show an overall Pension Credit take-up rate of 65%. The take-up rate for Guarantee Credit – the income ‘safety net’ component of Pension Credit – is higher at 72%. Take-up by expenditure in 2022/23 was 78% for Pension Credit overall, and 79% for Guarantee Credit. The most recent estimates also indicate that up to 760,000 households who could be eligible, were not claiming Pension Credit, compared with up to 870,000 households in 2021/22 meaning up to an estimated £1.5 billion in Pension Credit is unclaimed.[5] These are the upper bound of modelled estimates based on Family Resources Survey data.

 

  1. The Government has taken significant steps to encourage eligible pensioners to claim Pension Credit, engaging with stakeholder including charities, local authorities and through an awareness campaign which ran from September to December on radio, TV, social media and print media. Following a pause over the Christmas period, the campaign resumed in the new year. The campaign has seen DWP receive around 150,000 Pension Credit applications in the 16 weeks since the Winter Fuel Payment announcement. This is compared to around 61,300 Pension Credit applications in the 16 weeks preceding the announcement – a 145% increase in applications since the 29 July. 215,200 Pension Credit applications were received between 1 April and 17 November. During the same period 161,800 have been processed – resulting in 81,000 awards with 42,500 being awarded since the announcement. 

 

 

  1. Building on the evaluation of the 2023 ‘Invitation to Claim’ trial,[6] the Government in November wrote to around 120,000 pensioners in receipt of Housing Benefit who were identified as potentially entitled to Pension Credit, to encourage them to claim. Results of the 2023 trial showed that households receiving the letter from DWP were six times more likely to make a successful claim than those who did not receive the letter (once the data was appropriately refined, 27.5% of eligible households that DWP wrote to made a successful PC claim). Results of the November exercise should be available in the spring. 

 

 

  1. However, it is not currently possible to accurately identify all pensioner households who may be entitled to Pension Credit. Like all means-tested benefits, a person’s eligibility for Pension Credit – and the amount they may get – depends on their specific financial and personal circumstances. Some of this information, such as household composition and household capital, can only be provided by the single pensioner or pensioner couple who may be entitled to claim. The Department is looking to bring together the administration of Pension Credit and Housing Benefit, for new claimants from 2026, sooner than envisaged by the previous Government. This will help to ensure that pensioner households receive the benefits to which they are entitled.

Housing support

  1. For low-income pensioners, pension-age Housing Benefit (HB) can provide support for rental costs. HB pays those in the social rented sector their actual rent and any eligible service charges, while private tenants receive the lowest of either their actual rent or the relevant Local Housing Allowance rate. Those who receive the Guarantee Credit element of Pension Credit receive a passport to maximum eligible HB. The current pension-age Housing Benefit caseload (August 2024) is 1.1 million households expenditure with forecast to be £6.8 billion in 2024/25.

Other financial support

  1. Entitlement to Pension Credit can act as a gateway to various other forms of financial help from the UK Government, including Cold Weather Payments and Winter Fuel Payments in England & Wales, and NHS costs and help with Council Tax in England.[7] It is also used by the Scottish and Welsh Governments to provide access to some devolved services, including Pension Age Winter Heating Payment in Scotland, by the BBC to provide access to a free TV licence for those aged 75 or over; and by energy suppliers operating the Warm Home Discount Scheme on behalf of the Department for Energy Security and Net Zero. This provides a one-off £150 discount off the electricity bill for low-income households, including those receiving the Guarantee Credit in Pension Credit, and those receiving Savings Credit in Pension Credit or other income-related benefits who also live in a property assessed to be high cost to heat.

 

  1. Low-income pensioners may also be able to access targeted schemes to deliver energy efficiency measures, such as the Home Upgrade Grant and Energy Company Obligation; and for support through the Household Support Fund (HSF). The HSF has been extended in England for a further year until March 2026 and provides discretionary support to those most in need towards the cost of essentials, such as food, energy and water. The scheme covers a wide range of low-income households in need, and it is for Local Authorities to design their own local schemes within the parameters of the guidance and grant determination that the Department for Work and Pensions has set out for the fund. Funding of £742 million will be provided to enable the HSF extension in England from 1 April 2025 until 31 March 2026, with additional funding for the Devolved Governments through the Barnett formula to be spent at their discretion. This extension builds on the previous investment of £421 million to extend the HSF in England for six months from 1 October 2024 until 31 March 2025. Over 45 million individual awards have been made between October 2021 and March 2024 across the first four HSF schemes.

 

  1. Pensioners with a long-term health condition or disability may also be eligible for additional-costs disability benefits. In England and Wales these are Attendance Allowance, Disability Living Allowance and Personal Independence Payment.[8] In Scotland, where this is a devolved matter, they are the Scottish Government’s Pension Age Disability Payment, Adult Disability Payment and, from March 2025, Scottish Adult Disability Living Allowance. All of these reserved and devolved benefits also give rise to a disability addition in Pension Credit. Entitlement to Carer’s Allowance, or to the Scottish Government’s Carer Support Payment, gives rise to a carer addition in Pension Credit.

Private Pensions and Labour Market interventions

  1. The Government has also acted to support the interest of future pensioners through labour market interventions and reforms in the private pensions space.

 

Automatic Enrolment

  1. Automatic enrolment was introduced in 2012 to complement the State Pension and ensure individuals save for their retirement. This landmark policy requires employers to enrol eligible workers in a pension scheme by default, with contributions from both employees and employers, supported by government tax relief. This has transformed pension participation for millions of workers, including amongst younger and lower-income workers and women.

Pension Schemes Bill

  1. In future, the Government will seek to deliver on the various interrelated efforts in scope of the Pensions Schemes Bill – designed to enhance operation of the private pensions market, ensure it delivers value for money, improving member outcomes, and tackle challenges in the pension landscape such as the growth in the number of multiple small pensions pots.

 

  1. The measures will increase opportunity for investing in productive UK markets and improve saver outcomes, supporting over 15 million people saving into private-sector pension schemes. This Bill is designed to increase the amount available for pension savers and could help an average earner, who saves over their lifetime in a defined contribution scheme, to have over £11,000 more in their pension pots at retirement.  

 

  1. Our Bill will help enable an individual’s deferred small pots to be automatically brought together into one place to maximise income in retirement, and deliver better value for savers. This will significantly help low earners and those who change jobs more frequently, who therefore accrue more pension pots, by enabling their pots to be brought together into one place and protecting them from the risks that having multiple pension pots presents.

Pensions Dashboard

  1. The Government recognises that keeping track of various pension pots might make it difficult for savers to plan effectively for retirement. The Government is helping to address this by delivering the pensions dashboards – an online service that will allow people to securely view a summary of their pensions picture, including information about the State Pension. This will help people keep track of any pension pots they might have, in addition to promoting better engagement with pensions more broadly.

 

  1. Dashboard users will also be able to see the value of their current pension savings and an estimate of how much income from their various pensions they may obtain at retirement. This will make it easier for people to understand their pensions information so they can better prepare for financial security in later life.

 

Labour Market Interventions

  1. The Get Britain Working White Paper outlines the biggest reforms to employment support for a generation backed by £240 million of funding – and marks the Government’s first major intervention to tackle economic inactivity, with the long-term ambition of reaching an 80% employment rate. Being in paid work is the key to being able to save for retirement, notably but not only through automatic enrolment into a workplace pension.


Pensioner Poverty Statistical Annex

  1. The Households Below Average Income[9] publications are the official statistics on living standards in UK households, as determined by disposable income. They include the number and percentage of people living in low-income households, and changes in income patterns over time. The most recent publication was in March 2024, covering 1994/95 to 2022/23.[10]

 

  1. There are two main measures of low income, relative low income and absolute low income. Individuals are said to be in relative low income if they live in a household with an equivalised income below a percentage of contemporary median income before housing costs (BHC) or after housing costs (AHC). Unless otherwise specified, a household is said to be in relative low income if their net equivalised disposable household income is below a threshold set at 60% of median income, while they are in absolute low income if their net equivalised disposable household income is below 60% of the 2010/11 median income adjusted for inflation.

 

  1. The Government uses the leading and internationally recognised measure of relative low income after housing costs. Using relative low income allows us to focus on whether poorer households’ living standards are keeping up with the rest of society and capture long terms trends.

 

  1. For 2022/23, the percentages of all pensioners in low income are as follows:

 

Before Housing Costs

After Housing Costs

Relative low income

19%

16%

Absolute low income

15%

12%

Source: Households Below Average Income 2022/23, table 1_6a

 

  1. Poverty can also be measured by ‘material deprivation’, which provide an indication of people’s ability to access or afford a range of everyday goods and services. In 2022/23, the percentage of pensioners in material deprivation was 8%.[11]

 

  1. The proportion of pensioners in relative poverty after housing costs fell significantly from 1997/98 to 2010/11 - with the largest fall coinciding with the introduction of Pension Credit from 2003. Between 2010/11 and 2022/23, there has been an increase in relative poverty after housing costs for pensioners from 14% to 16% due to median income after housing costs rising at a faster rate than pensioner benefits. The rise in median income is driven by increases in employment for the working-age popuation which have outweighed the increases in pensioner benefits, despite pensioner benefits experiencing larger increases than working-age benefits over the same time period. There were also reduced housing costs for the working-age population relative to pensioners due to lower mortgage interest rates, which the majority of pensioners did not benefit from because the majority already owned their home outright.

 

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  1. Estimates of pensioners in low income broken down by various family and household demographic characteristics are also published in Households Below Average Income.[12]

 

  1. The full rate of new State Pension (currently £221.20 a week) and Pension Credit Standard Minimum Guarantee (£218.15 a week for a single person and £332.95 for a couple) has been above the relative poverty line for single pensioners since 2016/17 except in 2022/23.

*Data collection for 2020/21 was affected by the COVID-19 pandemic. Figures for that year are subject to additional uncertainty and may not be strictly comparable with previous years. Further information can be found here: Technical report: assessment of the impact of COVID-19 on the HBAI statistics for FYE2021 - GOV.UK

 

International comparisons

  1. It is difficult to make meaningful comparisons between State Pension schemes in different countries because there are many fundamental differences in the way they are run. There are many factors to take into account such as different tax systems, cost of living, access to occupational pensions and availability of other social security benefits, as well as the provision of services and goods free to pensioners or at concessionary rates. Access to healthcare is a particularly important factor given the provision of healthcare free at the point of use in the UK.

 

  1. However, OECD rankings show that the UK Pension system, including the new State Pension and Automatic Enrolment, will provide future workers with income replacement rates which are comparable to the OECD average, alongside countries such as Germany and Norway. OECD research also found that in 2020 the, old-age income poverty rate (percentage with income lower than 50% of median equivalised household disposable income after housing costs) in the UK for individuals aged over 65 is 13.1%, which is slightly below the OECD average of 14.2%.[13] This indicates that the UK has a relatively lower rate of old-age income poverty compared to many other OECD countries. Gender differences in old-age poverty are also notable in the UK. The poverty rate for older women is higher than for older men, which is consistent with the trend observed across OECD countries. In terms of poverty depth, which measures how far below the poverty line the average income of the poor is, the UK does not have the largest gaps. Countries like Iceland, Turkey, and the United States have more significant poverty depths among the elderly. Despite challenging circumstances amidst a rise in pensioner poverty over the past decade, overall, the UK has performed relatively well in terms of old-age income poverty compared to many other OECD countries, with lower rates and smaller gender disparities.

January 2025

 

11

 

[1] Throughout this text, the term ‘private pensions’ refers to both personal pensions and occupational pensions – unless a specific distinction is made otherwise.

 

[2] The Northern Ireland Act 1998 places a responsibility on UK and Northern Ireland Executive ministers responsible for social security to consult one another with a view to maintaining, to the extent agreed between them, single systems of social security, child maintenance and pensions. The Northern Ireland Executive has historically generally maintained parity with DWP in these matters and receives funding from HMT on this basis.

 

[3] Before the new State Pension, schemes like SERPS and S2P provided additional income for retirees based on their earnings during working years. By 2011, the additional earnings elements of the basic State Pension had become very complex, and it was difficult for people to get a good understanding of their expected income in retirement. 

 

[4] Pensioners' Incomes: financial years ending 1995 to 2023 - GOV.UK

[5] Pension Credit take-up figures are based on Family Resources Survey data. More information can be found here: Income-related benefits: estimates of take-up: financial year ending 2023 - GOV.UK

[6] Pension Credit ‘Invitation to Claim’ Trial - GOV.UK (https://www.gov.uk/government/publications/pension-credit-invitation-to-claim-trial/423b0c09-59f4-48be-87cc-0bf70cae6a72) October 2024

 

[7] Councils are required to put in place council tax support schemes for those on low incomes. The provision for pensioners (who are typically on fixed incomes) is prescribed by government and provides up to 100% reduction for those on the lowest incomes.

 

[8] Disability Living Allowance and Personal Independence Payment remain in payment if someone is receiving them as they reach State Pension age. Where the additional disability needs arise after that age, a claim to Attendance Allowance can be made. Disability Living Allowance is closed to new claims by adults, and Personal Independence Payment can only be claimed by adults below State Pension age.

[9] Households below average income (HBAI) statistics - GOV.UK

 

[10] Households below average income: for financial years ending 1995 to 2023 - GOV.UK

 

[11] Households Below Average Income 2022/23, figure 27.

[12] Households Below Average Income 2022/23, tables 6_5db and 6_6db.

 

[13] OECD (2023), Pensions at a Glance 2023: OECD and G20 Indicators, OECD Publishing, Paris, https://doi.org/10.1787/c3f27e35-en.