How do we get older workers to stay in or return to work?

Efforts to bring older workers who have retired back into the workplace are misplaced, according to a report by the Resolution Foundation think tank.

Since the pandemic the number of people who have become economically inactive for various reasons has risen by 800,000, with older people making up three quarters of this number – half of these being people of working age. At the same time the UK has seen rising concerns about labour shortages.

That has led to a policy focus on how to get those people back to work, but the Resolution Foundation’s report questions whether focusing on ‘unretirement’ – being trailed in the lead-up to next month’s Budget – is the right approach and says the Government should instead put more effort into tackling the rising numbers of people dropping out of work due to ill health and disability – a trend that began before Covid.

The report says most of the people who retired early during the Covid pandemic were wealthier workers who are unlikely to be enticed back by benefits or tax changes, which the Government is rumoured to be looking at. In fact, lower earners are less likely to have retired early in the three years since the pandemic first hit. Moreover, many of those who retired early during the pandemic will now have been out of the workplace for several years and research shows the longer someone is out of the workplace the harder they are to bring back.

Demographic changes

Louise Murphy, one of the authors of the report, told a Resolution Foundation meeting yesterday that there is room for optimism that issues linked to older workers’ participation in the workforce can be addressed. She said the last decade has seen a significant rise in workforce participation of older workers – with the number of men over 50 participating up 10% and the number of women up 22%, in large part due to the equalisation of and increase in the state pension age.

Moreover, one of the factors that has incentivised early retirement has been policy changes that enable those who can afford to to draw down their private pensions from the age of 55, with 25% of that money being tax free. The Foundation says that tax-free sum should be capped and the age at which it can be drawn down should be raised [it will go up to 57 by 2028 in any event].

Tackling long term health and disability issues

The report also calls for more focus on tackling long term health and disability issues, including mental health problems. While reforming the benefits system – as both the Conservatives and Labour propose – is a ‘step in the right direction’, Murphy adds that it is not as simple as someone being fit to work or not being fit to work. Moreover, she said neither party has really addressed the complexities of the benefits system. The Foundation is instead proposing a right to return period – similar to maternity leave – when someone who is ill or disabled will have their job kept open.

Dr Fiona Aldridge, Head of Insight at West Midlands Combined Authority, which has a high number of early retirees and people on long term sick leave, called for more devolution to local authorities who know better what local needs are and can provide the right kind of support, for example, around caring responsibilities or disability, and access to high quality flexible employment.

She spoke about the Thrive into Work programme which adopts a personalised approach to health and disability both to encourage retention and to help people find employment.  This involves health service professionals working with employers to create the right kind of jobs for people with health or disability issues.

The State Retirement Age

Sir Stephen Timms, chair of the Work and Pensions Committee in the House of Commons, backed the local approach. He also called on the Government to publish a review of plans to bring forward the rise in the state pension age to 68. This was due in the 2040s, but discussions are now centred on whether to bring that forward to the mid or late 2030s. Timms said the Government had had the report since September, but had failed to publish it so far. He felt accelerating the rise in the state pension age was “unjustified” given life expectancy is not rising as fast as earlier forecast. Torsten Bell, CEO of the Resolution Foundation, said the original reason used for the increase was growing longevity, but this is no longer what is happening. There’s a good argument instead to decelerate the increase, he stated, or to find another reason to justify it.

Timms said there was a risk of serious injustice as a result of the different experiences of older workers, depending on income with wealthier workers being incentivised to retire early and poorer workers having to keep working longer and longer and often in ill health.

Louise Hellem, Director of Economic Policy at  the CBI, said the focus should be on stopping people from dropping out in the first place through better support for mental health at work, flexible working and in-work job switches, for instance, retraining a manual worker to do a more sedentary job, something that she says is more successful than retraining a person for another industry entirely.

Mums

The report also addresses the issue of mums who have dropped out of the workforce because of childcare issues. Murphy says universal childcare is not the silver bullet for tackling the problem, although the CBI says all options should be considered as part of an independent review of childcare. The Foundation says the focus should be on low-income households, where mums of young children are much less likely to return to work due to a complex childcare support system and high upfront costs for nursery places. Moreover, second earners – likely to be mums – have lower work allowances within Universal Credit than first earners. That needs to be changed, said Louise Murphy.

She added that there needs to be more focus on quality work, particularly for low-paid jobs, and more awareness of the impact of work intensity and stress alongside more part-time options and more notice given of shift work for those with caring responsibilities or health issues. She pointed out the rising rates of young people dropping out or not starting work due to mental health issues and the implications for the future.

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