A major overhaul of the UK's pension system is urgently needed as new research reveals a devastating financial toll on older citizens. A study from the Institute for Fiscal Studies (IFS) warns that people over 65 face being around £30,000 worse off in financial wealth due to the impacts of cognitive decline in later life.
The Steady Erosion of Wealth and Cognitive Health
The IFS analysis indicates that increasing numbers of older people will be forced to make complex financial decisions well into advanced age, a period when many may already be experiencing significant cognitive decline. The research, based on data from the English Longitudinal Study of Ageing, tracks the parallel paths of mental sharpness and financial security.
It finds that average cognitive scores, measured by memory tests, hold relatively steady through an individual's 50s and early-to-mid 60s. However, a steady decline typically begins from the late 60s onward, with a much sharper drop observed for those in their 80s. The average memory score falls by approximately one third between a person's early 60s and their late 80s.
A £30,000 Gap Emerges Over a Decade
The financial consequences of this decline are severe but not immediate. The trajectories of wealth for those who experience cognitive decline and those who do not are similar just after the onset of low cognition. However, substantial gaps appear 8 to 10 years later. By this point, individuals who have suffered cognitive decline possess a level of net financial wealth that is roughly £30,000 lower than their peers who did not.
Alarmingly, the research shows that wealthier households bear the brunt of the loss. Those in the top half of the wealth distribution who experience cognitive decline see the largest reductions, both in absolute cash terms and as a percentage of their wealth. The IFS suggests this may be due to greater exposure to complex or risky assets that require active management. The study confirms the wealth decline is not primarily driven by formal care costs or financial gifts to family.
A Call for Proactive Protection and Policy Reform
Heidi Karjalainen of the IFS highlighted a critical window for action. "Our results show that as the effects of low cognition on financial wealth emerge only relatively gradually, there is a potential window of opportunity for policymakers, pension providers, individuals and families to put in place these protections," she stated.
This presents a clear call for advance planning. Karjalainen added, "For example, it may not be too late for households to start thinking about protections when they are already in retirement. If individuals were nudged to consider advance financial planning at a set age (e.g., 75), many could still be able to put in place arrangements to protect their finances."
The findings, published on 28 December 2025, underscore a pressing need for systemic change. As the population ages, the UK's pension framework must evolve to include stronger safeguards, helping to shield individuals from significant financial loss at a time when they are most vulnerable.
