DWP could hike standard Universal Credit by £431 for claimants born in one year

A state pension age rise confirmation has sparked calls to change Universal Credit in a bid to "alleviate poverty". The state pension age is due to increase from 66 to 68 in the next few years with economists calling for an overhaul to the benefit system ahead of this hike.

The state pension age is set to rise from 66 to 67 between 2026 and 2028. A new report from the Institute for Fiscal Studies (IFS), in partnership with the abrdn Financial Fairness Trust, has outlined potential solutions to support vulnerable groups affected by this change.

The report, published as part of The Pensions Review, proposes two targeted support measures that could help mitigate the effects of a higher state pension age. The first would provide additional support to those on Universal Credit who are one year below the state pension age.

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This would involve a 70 per cent increase to the means-tested Department for Work and Pensions (DWP) benefit's standard allowance for this group, helping to halve the gap between Universal Credit and Pension Credit. The second proposal focuses on providing increased support specifically to those receiving both Universal Credit and health-related benefits in the year before reaching state pension age.

The standard Universal Credit amount depends on your age and whether you are single or in a couple but can be worth £617 if you are in a couple, meaning a 70 per cent hike would add £431 taking payments to over £1,100.

Jonathan Cribb Carl Emmerson and Heidi Karjalainen, acknowledged there would be potential "trade-offs" if these proposed measures were implemented by the Government. "These measures would help alleviate poverty among those just below the state pension age , but they come with trade-offs," the authors stated.

"Both would directly add to spending on the working-age benefit system, although with costings of £0.6billion and £0.2bn per year." They added: "Both options would reduce financial incentives to work for those approaching the state pension age.

"For people of this age who are in good health, this reduction will be of particular concern because their labour market decisions are likely to be influenced by the financial incentives they face. In contrast, those in poor health will typically be relatively unresponsive to diminished financial incentives to work.

"But targeting additional support based on health conditions would increase the incentives for people to apply for disability benefits. Despite these trade-offs, there is a good case for using some of the public finance savings resulting from a higher state pension age for additional targeted support to the most affected groups.

"Not least as this might help maintain public and political support for increasing the state pension age as longevity at older ages increases further."