Early retirement the main driver of economic inactivity for older workers

A new study finds that early retirement is the main factor behind rising economic inactivity levels for older workers.

Keyboard, mouse and pad with retirement planning written in it


Most of the growth in older people under 69 leaving work for economic inactivity over the course of the pandemic is due to early retirement – and these are very unlikely to return to the workforce than other economically inactive people, according to a new study by the Institute for Fiscal Studies [IFS].

The study speculates that the increase in early retirement may be due in part to older people having increased their wealth during the pandemic, when consumption opportunities were minimal, and when asset prices (particularly housing) increased.

It found that there was little difference between men and women and between types of jobs, whether people worked in the public or private sector or whether they had degrees or not when it comes to economic inactivity. However, people who are able to work from home were more likely to become economically inactive and the study found that part-time workers, self employed workers and those in their 60s were more likely to move into economic inactivity. The IFS speculates that older people may have been turned off by working more remotely because they missed social contact with other workers or because, after working remotely, they found they appreciated the extra time at home and did not want to return to the workplace.

It says the rate of economic inactivity among people in their 50s and 60s rose from 35.4% in the first quarter of 2020 to 36.5% in the first quarter of 2022. This follows many years of falling inactivity prior to the pandemic. The rise in economic inactivity was larger for people in their 50s and 60s that for younger or older people and contributed two-thirds of the increase in inactivity over the last two years compared with pre-pandemic data. The remaining third of the increase in inactivity was due to fewer people leaving inactivity for employment and more people moving from unemployment to economic inactivity than pre-pandemic.

The report shows over a third of the increase in inactivity in the early part of the pandemic was due to redundancies and dismissals, but this tailed off in 2021. It adds that it doesn’t seem as if poor health is the primary driver of increases in economic inactivity rates, with the pre-pandemic and pandemic rate broadly stable. It says growth in health-related reasons for leaving the labour force only accounts for 5% of the overall growth in inactivity among older workers.

The IFS says: “Overall, the rise in economic inactivity among 50- to 69-year-olds does not look to be driven primarily either by poor health or by low labour demand leading to people being unable to find work and becoming discouraged. It looks more consistent with a lifestyle choice to retire in light of changed preferences or priorities, possibly in combination with changes in the nature of work post-pandemic (in particular more remote work) which reduce the appeal of staying in employment.”

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