Is there a new trend towards early retirement?
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New research confirms that people in their 50s and 60s have left the workforce in droves during the Covid-19 pandemic – not because they can’t work, but because they don’t want to. Is this the start of a new trend?
Early retirement is by far the biggest driver of economic inactivity in people in their 50s and 60s, new research from the Institute for Fiscal Studies shows, dwarfing reasons like ill health.
People’s decision to leave the workforce during the pandemic was largely a lifestyle choice, the IFS said, as more than half (53%) of the increase in 50- to 69-year-olds becoming economically inactive was because of retirement - no other single reason contributed more than 13%.
“Rather than being driven by poor health, or by weak labour demand, our findings suggest that this rise in inactivity is driven by a lifestyle choice to retire in light of changed preferences or priorities during the pandemic,” said IFS research economist Bee Boileau.
Will they return to the workforce?
These recent early retirements reverse a decades-long trend, the IFS said, as economic inactivity among this age group fell from 47% in 2000 to 35% by early 2020. The latest increase to about 36.5% now “may look modest but is economically important, especially in the face of very high numbers of job vacancies”, it said.
The institute added that it is too early to say whether this is the start of a new trend towards earlier retirement, but if that is the case, it could significantly affect the broader economy and public finances.
Jonathan Cribb, an associate director at the IFS, pointed out that it is likely that the rise in inactivity at these ages could be quite persistent, as few normally return to the workforce after retirement, but the current cost of living crisis might change things again. “Many people are currently experiencing a severe squeeze on their incomes with increasing inflation, and returning to work could be an option for some,” he said.
Part-time and self-employed workers in their 60s most likely to stop
The groups seeing the biggest movements were those in their 60s, part-time workers and the self-employed, while gender, level of education, type of work and whether the employer was public or private sector did not make any difference.
The percentage of those citing long-term sickness or disability as a reason for leaving the workforce has remained relatively constant, the IFS said, which means poor health was not one of the drivers as the pandemic might suggest. This is also corroborated by the finding that workers with greater exposure to Covid-19 were no more likely to retire early than those with less exposure.
Redundancies explained just 11% of the growth in economic inactivity in those in their 50s and 60s last year, the IFS noted. Redundancy rates fell compared with 2020 and re-employment rates following redundancy rose; redundancies returned to their pre-pandemic levels in 2021.
