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The Institute for Fiscal Studies has analysed figures on economic inactivity and says the numbers are going down, but it could be a temporary response to the cost of living crisis.
The Covid rise in older people leaving the workforce is beginning to reverse, according to the Institute for Fiscal Studies.
It cites new data from the Labour Force Survey on what was happening at the end of 2022, but says the overall change in numbers of people quitting the workforce is small and it is too early to say if it is a trend. The survey shows that, in October–December 2022, there was a sharp and statistically significant uptick in 50- to 64-year-olds moving out of inactivity and back into the workforce, in particular people who had been out of work for less than three years who accounted for the majority (57%) of the 197,000 50- to 64-year-olds who moved out of inactivity in that period.
Moreover, the share of economically inactive 50- to 64-year-olds who say they would ‘probably’ or ‘definitely’ not work again has fallen for two consecutive quarters, from 68.9% in April–July 2022 to 65.9% in October–December 2022. And the share of economically inactive 50- to 64-year-olds who say they would like to work has also increased in the last few quarters.
The IFS warns it could be a temporary blip due to the cost of living crisis and it may be that older workers continue to drop out in the future. Several recent reports, including one by the Resolution Foundation, have pointed out that ill health rather than early retirement is the main reason for the increase in older workers leaving the workforce since Covid.
It states: “We may be seeing some return to the labour force among older workers, and we should not write off the possibility of a wave of ‘unretirements’. As yet, however, any change has been very small compared with what we have seen since 2020, and it is not clear whether it will become an established trend.
“The bigger picture is that, if indeed there is a turnaround and it has been triggered by the cost of living crisis, it is no cause for celebration – that would represent people responding to becoming poorer. At best one might read it as evidence that some of these people are not as far removed from the labour market as we might have thought, meaning that perhaps policy action could entice them to return for more positive reasons than an inflation shock.”
Meanwhile, leading pension and investment companies have written to the Government ahead of the Budget earning a review of a tax rule which governs how much can be saved into a pension before tax charges apply. Usually, people can contribute up to £40,000 a year into their pension pots before being taxed, but that threshold [the money purchase annual allowance] can fall to just £4,000 for some over-55s who choose to access their pension early. The letter warns that this could affect decisions around return to work.