Decisions to retire early are driving growing economic inactivity among people in their 50s and 60s

The number of economically inactive people – those who are neither in paid work nor looking for paid work – in their 50s and 60s has grown by more than a quarter of a million since the period immediately before the pandemic. 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 36½% now may look modest but is economically important, especially in the face of very high numbers of job vacancies.

The most important reason for this increase in inactivity 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. 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.

These are some of the key findings of new work released today by the Institute for Fiscal Studies funded by the Economic and Social Research Council.

The evidence suggests that many more people made a lifestyle choice to retire during the pandemic:

• 53% of the growth in 50- to 69-year-olds leaving employment for inactivity was due to people retiring. No other single reason contributed more than 13% to the growth of leaving work for inactivity.
• Movements into inactivity were especially pronounced amongpeople in their 60s, part-time workers, and self-employed workers – who are all in some sense closer to retirement. Otherwise, the increase was very broad based and similar for men and women, those with and without degrees, professionals and non-professionals, and public and private sector employees.
• The fact that a lot of the growth in inactivity is due to retirement suggests that it is more likely to be permanent for these people. 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 retired people ever return to work.

In contrast there is little evidence for other potential drivers of the rise in inactivity. It does not seem as if poor health is the primary driver of these increases in economic inactivity rates.

• The fraction of workers in their 50s and 60s moving from employment into being economically inactive due to ‘long-term sickness or disability’ has stayed relatively constant, with around 0.3–0.5% of 50- to 69-year-old workers per quarter making this transition both before and after the pandemic. Growth in health-related reasons for leaving the labour force only accounts for 5% of the overall growth in inactivity for people in their 50s and 60s.
• People working in occupations that were more exposed to COVID-19 (or who worked in greater proximity to others) were no more likely to see increases in the rates of moving into inactivity.

The other key potential driver of higher inactivity could have been low labour demand for particular skills or occupations. However:

• In 2021, only 11% of the growth in the number of 50- to 69-year-olds leaving work could be explained by redundancies or dismissals, with redundancy rates falling compared with 2020 and re-employment rates following redundancy rising. While this reason was more important in 2020 when redundancy rates spiked, redundancies returned to their pre-pandemic levels in 2021.
• We do not find differences in the increase in rates of leaving employment for inactivity between those working in occupations that have seen particularly high, or relatively low, growth in vacancies over the last two years. This suggests that weak labour demand for particular occupations or skills is unlikely to be driving the increased rates of inactivity in this age group.

Bee Boileau, a Research Economist at IFS and an 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.’

Jonathan Cribb, an Associate Director at IFS and another author of the report, said:

‘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 quite persistent. 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.’