‘Age-blind’ approach of Universal Credit risks missing opportunity of older workers

Britain is missing a crucial opportunity to encourage more older people into work because the government’s new flagship welfare reform delivers only mixed benefits for the age group warns a new study from independent think tank the Resolution Foundation.

While many older workers will be better off under Universal Credit (UC) – the system replacing tax credits and several other benefits from this year – others will see their financial incentives to work sharply reduced. In the most severe case, someone aged over 60 and earning £7 an hour could see their annual income from work fall by £1,640 – from £9,120 to £7,480.

The change results from the fact that UC abolishes the ‘hours rules’ that exist in tax credits, smoothing out the support people receive as they take on more hours of work. This change has different effects for different family types but in general it benefits people who work a small numbers of hours and reduces support for those working more hours.

Under the switch to UC, younger and older workers alike will tend to be better off if they work fewer than 16 hours a week and worse off if they work more than 30 hours a week. However many older workers doing between 16 and 30 hours a week on low incomes receive an extra level of support under the current system of tax credits which is not available to younger people. Under UC, this advantage will disappear with the result that an additional tranche of low-paid older people working more than 16 hours a week will be worse off (see Figure 1).

The report, Getting On: Universal Credit and older workers, argues that the ‘age blind’ design of UC risks missing an important opportunity. While the UK has seen the number of 50-64 year olds in employment rise by half to 7.5 million over the last two decades, it still ranks poorly among advanced economies – the UK would add another 1.5 million workers if it matched the older employment rates of leading competitors. One in three people of working age in the UK is already over 50 and their numbers will grow by a further 1 million to 16.3 million in the next 20 years.

The report also looks at options for reforming UC, allowing older workers to keep more of their earnings before support starts to be withdrawn (raising the ‘disregard’). A new, higher disregard for workers over 55 would leave low paid older workers better off by £150 a month at an overall cost of £200 million. This cost would fall if older people moved into in work as a result: the Treasury saves around £5,300 a year when a person moves from longer-term unemployment to work 25 hours a week.

The Resolution Foundation report also notes that UC has other positive features for older workers. In particular, it will boost incentives to save into a pension because all UC recipients will have 100 per cent of their pension savings disregarded when their support is calculated.

Giselle Cory, senior analyst at the Resolution Foundation and author of the report, said:

“The UK urgently needs to raise employment levels among older people but, as it stands, UC looks like a missed opportunity to do this because of its age-blind design. Indeed, some older workers will be worse off under UC, reducing their incentive to work.

“One option would be to allow older workers to keep more of what they earn before support is withdrawn. Our ageing population and relatively poor performance in this field makes this a crucial economic issue for the country.”

Ends

Notes to editors

Getting On: Older workers and Universal Credit by Giselle Cory is published by the Resolution Foundation and can be downloaded from www.resolutionfoundation.org