‘Urgent need to tackle ageing workforce issues’

The impact of an ageing population as a contributor to the workforce squeeze is a factor which has not received the attention it deserves, given that early retirement is the biggest factor driving labour shortages since Covid, according to a House of Lords committee.

The Economic Affairs Committee states that earlier retirement is the biggest of four factors that have made it harder to fill jobs, the other three being increasing sickness, changes in the structure of migration  related to Brexit and an ageing UK population, although a leading employment expert says the focus on retirement is a ‘red herring’.

The committee says the Covid rise in inactivity has meant that ageing workforce trends have reinforced, rather than been offset, by other factors, and poses serious challenges to the UK economy, as it exacerbates the current inflationary challenge, damages growth in the near term and reduces the revenues available to finance public services while demand for those services will grow.

It states that, although the population is getting sicker, most of the rise in sickness-related inactivity is among people who were already inactive. It adds that it is critical to understand better what drove this wave of retirement, outlining two possible avenues for exploration: the impact of lifestyle changes during the Covid-19 pandemic, including the furlough scheme,  on earlier retirement and increased savings during the pandemic and the UK’s pensions flexibilities.

The report says the majority of those over 50 who have left the workforce since the pandemic neither want nor expect to return to work and most appear reasonably well-off. It states that it would be “unwise” to assume  a significant proportion of those who have exited the labour force since 2020 will come back, although some experts have said this may be too bleak a prognosis.

Lord Bridges of Headley, Chair of the House of Lords Economic Affairs Committee and former Parliamentary Under-Secretary of State at the Department for Exiting the European Union, said: “The rise in economic inactivity makes it harder to control inflation; damages growth, and puts pressure on already stretched public finances. That’s why it’s critical the Government does more to understand the causes of increased inactivity, and whether this trend is likely to persist.”

The Department of Work and Pensions is currently conducting a review into workforce participation.

Tony Wilson from the Institute for Employment Studies commented on the report, saying the focus on early retirement was ‘really odd’. He said: “Retirement is hardly driving the change in levels at all – it’s ill health and students. Retirement is almost back to where it was pre-pandemic. I think the problem is that retirement did explain the rise in flows out of work for over-50s, and discussion of economic inactivity has overly focused on these two things. But it’s not rising because of flows out of work for over-50s, it’s rising because of lower flows INTO work (i.e. longer durations) and this is happening because of more people reporting they’re out of work due to long-term ill health (especially people aged 25+) and more students (16-24). In fairness the Lords report makes these points too, but all the focus seems to be on retirement, which is a red herring.”

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