Scotland’s pensions timebomb: over-40s too reliant on benefits

But new financial data from my company, Smart Data Foundry, tells a different story for a growing number of Scots. Among adults aged 40-69, reliance on means-tested benefits is not only increasing – it’s rising faster than for any other age group.

The proportion of the population for whom benefits make up 20 per cent or more of their total income has increased from 5.6 per cent to 8 per cent over the last year alone. That’s roughly 35,000 additional people for whom Universal Credit, Housing Benefit or tax credits have become a meaningful part of how they make ends meet.

This is a hangover of youth financial precarity – sustained inflation, unaffordable housing and student debt have pushed back major life milestones for millions of younger people. A quarter of 35-44 year-olds now rent privately, compared to just 10 per cent in 1997. Owning a home is increasingly something people achieve – if at all – in their late 30s or 40s.

In still paying rent during your 40s and 50s, rather than a mortgage you’ve been chipping away at for years, your housing costs are higher and your financial resilience is lower. With private rents outpacing wage growth, it’s little wonder that more eligible people are turning to Housing Benefit and Universal Credit to bridge the gap.

This is the flip side of this generation’s financial story – and it’s playing out quietly, in the years when people should be consolidating rather than struggling.

What makes this particularly significant is the shadow it casts over retirement. Means-tested benefits do not count as pensionable income. Every year spent relying on social security to supplement a low wage is typically a year in which pension contributions are reduced, paused or absent.

The pension gap that can open in your 40s and 50s is extraordinarily difficult to close in the time before retirement age.

Earlier in May, the Pensions Commission published its interim report into retirement saving in the UK. It found that 15 million are under-saving for retirement, leaving women, the self-employed and low earners particularly at risk of a financial cliff-edge when they retire.The consequences of this are already visible in pensioner poverty figures. Around 1.7 million UK pensioners currently live in poverty – and that is set to rise as those now entering their 50s with limited pension savings reach retirement age. Scotland has slightly lower rates of pensioner poverty than the UK average, but the trend in benefits reliance among working-age adults suggests that picture could worsen.

It would be tempting to attribute the rise entirely to the cost-of-living crisis –and rising prices have undoubtedly pushed more eligible people to claim.

The energy price cap is estimated to rise by a further £200 from July, and food inflation is forecast to hit 10 per cent by year-end. For someone on a modest income in their 50s, this sustained pressure can tip the balance.

But this is not a story about dependency or failure. The social security system exists precisely to support people whose incomes fall short of what they need – and for the 35,000 additional Scots now showing benefits reliance, claiming Universal Credit or Housing Benefit is likely the right and rational thing to do.

Benefit uptake initiatives, such as Nationwide Bank’s work to help customers understand what they are entitled to claim, represent exactly the kind of practical intervention that can make a material difference to household finances.

The problem is not that people are claiming benefits – the problem is that a growing number of working adults in their 40s and 50s need to do so, and this unfortunately has significant consequences for their financial stability into later life.

Charlotte Binstead is head of communications at Smart Data Foundry