Early retirement has seen the number of economically inactive people in their 50s and 60s grow by more than a quarter of a million since the period immediately before the pandemic, a study suggests.
Analysis from the Institute for Fiscal Studies (IFS) found 53% of the growth in 50- to 69-year-olds leaving employment for inactivity was due to people retiring.
The think tank said this is a “reversal of a decades-long trend” which had seen economic inactivity among this age group fall from 47% in 2000 and 42% in 2010 to 35% by early 2020.
“The increase to 36.5% now may look modest but is economically important, especially in the face of very high numbers of job vacancies,” it said.
Movements into inactivity were particularly pronounced in those in their 60s, part-time workers, and the self-employed who are nearing retirement age.
Economic inactivity is defined as people who are neither in paid work nor looking for paid work.
According to the IFS, the single biggest factor for the surge was a sharp rise in the number of people deciding to leave work for retirement.
“Leaving work due to ill health can explain only a very small proportion of the increase, and the rise in inactivity is not driven by a lack of job opportunities,” the report said. “Many people are simply deciding to retire earlier.”
“It is too early to say whether this presages a new trend to earlier retirement, but if it does the consequences for both the economy and the public finances could be substantial.”
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Bee Boileau, research economist at IFS and author of the report, said: “The fall in the employment rate and rise in the rate of economic inactivity for people in their 50s and 60s has begun to reverse decades of falling inactivity at these ages.
“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.
“People in occupations where remote work is easier were actually slightly more likely to leave work for inactivity, which suggests that the increase in working from home may have reduced the appeal of staying in employment for some.”
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The IFS notes that the results suggest that it’s more likely to be permanent decision for these people.
It adds people are “less likely” to return to work from retirement than from other forms of inactivity, with previous research finding only 5% to 10% of people who decide to retire return to work.
“Since over half the increase in inactivity has been people saying they retired, it is likely that the rise in inactivity at these ages may be persistent,” said Jonathan Cribb, associate director at IFS and author of the report.
“Historically, very few people leave retirement and go back to paid work. On the other hand, many people are currently experiencing a severe squeeze on their incomes with increasing inflation, and returning to work could be an option for some.”
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