Covid causes older workers to change retirement plans

One in eight older workers have changed their retirement plans as a result of the Covid-19 pandemic, with 8% planning to retire later and 5% planning to retire earlier, according to a new report.

The briefing note by the Institute for Fiscal Studies shows that timing of retirement is an important means of adjusting to financial shocks for some older workers, but the IFS says it also illustrates how disruptive this crisis has been to major life plans.

The briefing note uses data from the English Longitudinal Study of Ageing (ELSA) Covid-19 study to examine how the work activity of older individuals has been affected by the pandemic, how older workers’ concerns about their job security vary with their individual characteristics and how retirement plans have already been affected by the crisis. The data were collected in June–July 2020, from a sample of nearly 6,000 individuals in their 50s and older.

It finds that nearly one in four employees aged 54 and over, who were working before the crisis, were on furlough in June-July, while among those still working, one in five were working fewer hours. Among the self-employed aged 54 and over, a third were not working, and among those who were working only one in five reported they could carry on their work as normal.

A significant minority of older people working immediately before the crisis are now retired: 6% of those aged 66–70 and 11% of those aged 71 and older. While some may have been planning to retire around this time anyway, this was not true of half of those surveyed, says the IFS. It states that this is evidence that the current crisis has already caused some older workers to alter their retirement plans.

Among those on leave in June–July, the advice to shield or concerns about their own health were the only reason(s) cited for nearly one in six individuals. However, many people who are clinically vulnerable to coronavirus have continued working outside their homes.

The report also found that concerns about job security were prevalent and not restricted to those who are on paid or unpaid leave. Among those in employment, 18% were somewhat worried about their job security, while 5% were very or extremely worried. Those aged 54–59 were more worried about their job security than those at older ages. Those with a health condition or disability that limits the amount or type of work they can do were also particularly concerned.

Those currently on paid/unpaid leave were more likely than others to now be planning to retire earlier and those with more wealth were also more likely than those with less wealth to be planning to retire earlier as a result of the pandemic.

The report says the effect of stock market falls on pension wealth is one driver of later retirement plans: those with defined contribution (DC) pensions who reported a fall in their wealth are six percentage points more likely to be planning to retire later as a result of the pandemic than those with no DC pension wealth. Those working from home are five percentage points more likely than other workers to now be planning to retire later.

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