The causes 

The chart below shows the growth (or decline) in different categories of economic activity for the over 50s in the UK, pre and post-pandemic. There have been large gains to the retired, and long-term sick or disabled categories as well as ‘inactive other’. It’s possible that COVID-19/long-COVID is responsible for some of the long-term sick categories. In the early days of the pandemic, the only real risk factor that was known was age and in the year before vaccines were made available it was safer to stay socially distanced, i.e., away from work. Had the pandemic lasted a short time the disruption would have been minimal. It’s worth remembering that the furlough scheme was extended 5 times. That means the end of the pandemic has been wrongly second-guessed 5 times. Habits set in and priorities are reassessed.  

In addition to these specific features of the COVID downturn, it should be noted that early exit from the labour market of older workers has occurred in previous downturns and should be expected. A report on retirement in the 20th century by the Institute for Fiscal Studies found that: 

“The recessions of the early 1980s and (to a lesser extent) the early 1990s had a particularly large and lasting effect on the employment of older men”.

The category of economic activity that experienced the biggest loss has been self-employ. Self-employment is particularly popular among older workers, but this category suffered during the pandemic. The self-employed were more exposed than those in employment where the simpler furlough scheme could get them help quickly. Changes such as IR35 also make self-employment less desirable.

Another facilitating factor to an early exit from work is increased pension freedoms bought in 2015 which allow people to flexibly access pensions from the age of 55. And finally, we should note the massive increase in house prices since the start of the pandemic. For many, their house is their pension, and since the start of the pandemic, the average property has grown by £38,709 according to the Halifax’s house price index. This massive wealth effect must surely make people feel more secure about their retirement plans. 

Boosting older workers’ employment rate

When we colour the bars in the chart by whether someone wants a job or not, we can see that most of the change has been from economically active categories where people want to work to economically inactive categories where people don’t want to work (the classic example being retired). This suggests that much of the change is voluntary. This is important. In 2017 the Department of Work and Pensions published the Fuller Working Lives report which ‘encouraged businesses to retain, retrain and recruit older workers and presents the benefits of a fuller working life’. The report talked of a missing million older workers. In order to meet the definition of missing it was deemed necessary that an older person needed to want to work. The concern about large numbers of older people not working (and seemingly happily so) is new. 

Longer working lives is a desirable policy aim for a few reasons. People are living longer, and the state pension age is increasing. Pensions be they private or public must last longer. Good work can be good for physical and mental health. And there are still 1 million older people who would like to be in work but are currently not. One contemporary imperative to boosting older people’s employment is simply to increase labour supply. The labour market right now is incredibly tight. Demand for staff is high as evidenced by record vacancy postings, and the pool of candidates is low. Fewer workers could be a constraint on growth. 

Should we be worried? 

The question is, can we really put the genie back in the bottle? How much of this early exit is baked in? The specific nature of the pandemic, including a disease that is more deadly to older people, a Government response that was easier to support the employed than the self-employed, house price growth that boosted wealth. These are things that can’t be undone. Would it be desirable to reverse the pension freedoms or IR35? Would homeowners ever vote for policies that lower house prices, or taxing the capital gains more strongly? 

So what can be done?

It might be difficult to reverse much of the drop in older worker participation that occurred during the pandemic due to the nature of its causes and the length of time that has passed. However, there is something that can be done on a longer-term secular basis. When older people say they are inactive (in retirement for example) and do not want a job, their only point of reference is the world of work as it is today. The world of work that they have just left because it didn’t work for them.

Our latest report looks at the preferences and ways of working of older workers. The report finds that older workers are the most likely to want to work fewer hours (for less pay). They are the most likely to be self-employed, a mode of working that provides lots of flexibility. Older workers also have the highest rates of hybrid and home working. It finds that older workers are more likely to have caring responsibilities, and more likely to have a long-term illness or disability. The challenge for employers and policymakers is to create work that works for them. Such work would provide ample flexibility and opportunities for training and progression (two areas that the report finds are lacking for older workers).