Rise in early retirements ‘risks long-term damage to economy’

BRITAIN faces a permanent drag from Covid after hundreds of thousands of older workers retired early, the Institute for Fiscal Studies warned, as it published new evidence of Britain’s economic inactivity crisis.

Some 270,000 people aged between 50 and 69 left work during the pandemic, the IFS said. The vast majority decided to retire early, as opposed to being laid off or forced out of work by illness. Beatrice Boileau, of the IFS, said: “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.”

The IFS found that the rise of remote working during lockdowns had exacerbated the problem by making staying in work less appealing.

Ms Boileau said: “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.”

The increase in economic inactivity overturns decades of increases in the numbers of older people in the workforce, a trend that has been an important driver in the growth of the economy since the financial crisis.

Now employers are advertising a record 1.3m jobs but are struggling to fill the positions, limiting growth.

The figure matches the number of people seeking work, a situation that had not been seen before in two decades of data.

It is viewed as a significant factor in staffing shortages across the economy, which are causing chaos at airports.

Covid has caused rises in economic inactivity around the world and across age groups, but Britain has been especially badly affected. Before the pandemic, just 20.5pc of under-65s were classed as inactive, lower than the

OECD average of more than 27pc. Just a handful of nations, including Japan, Iceland and Switzerland, had lower inactivity rates.

By the end of 2021, the UK’S rate had risen to 21.4pc even as more people joined the labour force in nations such as Germany and Australia, which have overtaken Britain when it comes to participation. The UK also fell behind Canada and Denmark.

Ms Boileau said: “The drop in older workers means that overall labour supply is lower, meaning potential economic output is more limited and that economic growth will take place more slowly. These workers in their 50s and 60s are likely to have more experience, too, so there may be a more considerable effect on economic growth.”

There had been hopes that people would ultimately return to work once infection rates faded. But since most of the 270,000 now describe themselves as retired, they are unlikely ever to change their minds. Just 5pc to 10pc of people typically go back to work once they have retired, the IFS said.

Instead of returning by choice, only desperation is likely to bring these workers back into the jobs market, according to Jonathan Cribb, another IFS economist.

“Historically, very few people leave retirement and go back to paid work,” he said. “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.”