The employment rates of people in their 50s and 60s have risen over the past few decades, partly due to increases in the UK’s state pension age. But since the pandemic, employment rates for these age groups have fallen, as many have moved into early retirement.
There have been large changes in patterns of employment among people in their 50s and 60s over the past few decades. The share of these age groups in paid work increased from around 46% in 1994 to around 61% just before the pandemic (Crawford et al, 2021). The trend was particularly driven by women aged 60-65, whose employment rates increased by around 25 percentage points over this time period (Cribb and Emmerson, 2022).
In the last few years, the picture has become less clear. On the one hand, there were large increases in employment rates among 65 year olds between 2018 and 2021. This was due to the most recent rise in the UK’s state pension age (Cribb et al, 2022). But among the larger group of people in their 50s and 60s, employment rates have fallen by around 1.2 percentage points since the start of the pandemic, partially reversing a decades-long trend (Boileau and Cribb, 2022).
What effect did the most recent increase in the state pension age have on 65 year olds?
The UK government has been increasing the earliest age at which people can claim a state pension known as ‘the state pension age’. This is partly in response to pressures on the sustainability of the system brought on by rising life expectancy and an ageing population, as well as to ensure the fairness of the system across different generations as life expectancy increases.
Most recently, the state pension age for men and women rose from 65 to 66 between December 2018 and October 2020. Understanding the effects of this is important because the state pension age is already legislated to rise further, starting with an increase to age 67 between 2026 and 2028.
The change from 65 to 66 has had a clear effect on the employment of 65 year olds, as Figure 1 shows (Cribb et al, 2022). Before the end of 2018, the employment rates of 65, 66 and 67 year olds evolved similarly, rising gradually over time. But since the state pension age rose above 65 at the end of 2018, the employment rate of 65 year olds has grown sharply from 29% to 39%. At the same time, the employment rates of 66 and 67 year olds have continued on their previous trajectory.
Figure 1: Employment rates of people aged 65, 66 and 67 over time
Source: Authors’ calculations using the Labour Force Survey.
Note: The vertical line shows the last quarter in which all 65 year olds were over the state pension age (2018 Q3).
Overall, the rise in the state pension age from 65 to 66 led an extra 8% of 65 year olds (55,000 people) staying in paid work. The increases in employment for men and women have been of similar size.
But the employment effects of the reform were not the same for all groups. In the most deprived fifth of the country, women’s employment rate at age 65 rose by 13 percentage points and men’s by 10 percentage points. In contrast, in the most prosperous areas, women’s and men’s employment rates at age 65 rose by just 4 and 5 percentage points respectively. This suggests that many of those living in poorer areas are unable to retire without the income provided by the state pension.
While the higher state pension age did cause a significant increase in employment among 65 year olds, it is important to highlight that the vast majority (over 90%) of individuals in this age group did not change whether they were in paid work because of the change. Some individuals will have retired before 65, while others would have worked past 65 regardless of the rise in the state pension age.
But one group of particular concern is the 65 year olds who would like to work because of the increase in the state pension age but are unable to. There are 30,000 individuals in this group, affected either because they cannot find employment, or because they have health problems that are preventing them from working.
Since only a minority of 65 year olds offset the loss in state pension income with extra employment income, household incomes among this age group fell by an average of £108 per week due to the reform (Cribb and O’Brien, 2022).
A large increase in poverty came along with this: almost 100,000 more 65 year olds were in income poverty as a result. The counterpart to lower household incomes – and higher poverty rates – was a boost to the government’s finances of around £5 billion per year.
What has happened to the employment rates of people in their 50s and 60s since the onset of the pandemic?
Despite the increased state pension age encouraging 65 year olds to delay retirement, there has recently been greater concern about an exodus of older workers from the labour market. This stands in contrast to the longer-run trend of higher employment at older ages seen over the past few decades.
Since the pandemic, employment rates among people in their 50s and 60s have declined. This has been driven by increasing rates of economic inactivity, which refers to the state of neither being in paid work nor searching for work. Put another way, it is not a result of rising rates of unemployment for this group.
Those in their 50s and 60s stand out as a group in their experience of increased economic inactivity. There were 270,000 more economically inactive people in their 50s and 60s between October 2021 and March 2022, compared with the period from October 2019 to March 2020, immediately before the pandemic (Boileau and Cribb, 2022).
The proportional increase in inactivity among this group has been significantly larger than for most other age groups. The Institute for Employment Studies (IES) estimated in May 2022 that the fall in the number of over-50s in the workforce accounted for 58% of the gap between contemporary labour force participation and what we might have expected before 2020 (IES, 2022).
The rates at which those in their 50s and 60s are moving directly from employment into economic inactivity are higher than at any point since at least 2006, a period of time that includes the global financial crisis of 2007-09 (see Figure 2). These movements directly out of employment explain two-thirds of the net increase in economic inactivity during this period.
Figure 2: Number of people aged 50-69 moving from employment to inactivity (and vice versa) and from unemployment to inactivity (and vice versa) within three months, by half-year
Source: Boileau and Cribb, 2022.
Note: The vertical line indicates the final data point unaffected by the Covid-19 pandemic.
Within older age groups, who is moving from employment into economic inactivity?
On many dimensions, the rate of movement into inactivity among older workers has been relatively broad-based, with little variation between groups. For example, there was minimal difference between men and women, between professional and non-professional occupations, or between those with and without degrees.
Yet there are three specific groups that have left employment at greater rates than others. Self-employed workers were more likely to leave work and move into inactivity than employees, and they did so earlier. This trend peaked in 2020. Part-time workers also moved out of employment at a faster rate than full-time workers. And the increase in the rate of movement into inactivity was more marked for those in their 60s compared with those in their 50s, especially in 2021.
It is striking that these three groups stand out: they are all groups that are, in some sense, close to retirement. Part-time work at older ages plays an important role in transitions into retirement for some older workers (Crawford et al, 2021). Self-employed workers have lower earnings than employees (Cribb et al, 2019), and more control over their working lives. And those in their 60s are closer to – or at – their state pension age, so they can count on more imminent financial support from the state to move into retirement.
What has driven the fall in employment for 50-69 year olds?
Weak labour demand for particular occupations or skills during the pandemic does not seem to have driven the fall in employment for those in their 50s and 60s. There were no strong differences in rates of leaving work between those in occupations that have seen relatively high or low growth in vacancies over the last two years.
Redundancies and dismissals did play some role in increasing movements into inactivity in 2020 compared with before the pandemic. They drove over a third of the increase in older individuals leaving the labour force in 2020, compared to the years immediately before the pandemic. But redundancies were much less important in 2021, as the economy recovered.
Health reasons were also not a central driver of these trends. Only 5% of the growth in movements out of work into economic inactivity between 2017-19 and 2021 was a result of people saying that they left their last job for health reasons. Movements directly into long-term sickness or disability from employment remained similar to their pre-pandemic levels in 2020 and 2021. The increases in movements from employment to inactivity were also similar for those with and without a longstanding health condition.
Instead, early retirement has been key to these changes in employment. More than half of the growth in people leaving work and moving into inactivity during the pandemic was driven by people saying that they had retired from their previous job. Retirement was both the most frequently given reason and the reason that saw the largest increase between 2019 and 2021 (Office for National Statistics, ONS, 2022).
What might happen to employment rates of older workers in the future?
It is difficult to say how employment will evolve in the future, and much will depend on how long-lasting are the increased inactivity rates from the pandemic.
In general, retirement tends to be a persistent condition, with only 5-10% of people who retire in the UK returning to paid work (Kanabar, 2013). Around six in ten older adults who became inactive during the pandemic, who were surveyed by the ONS, reported that they would not consider returning to work in the future (ONS, 2022). But high inflation and rising energy bills could potentially mean that more return to work out of financial need, especially if retirement has been taken significantly earlier than planned.
Looking further into the future, there are reasons to believe that the long-running trend of higher employment rates among older workers will return. Each successive generation approaching retirement has more labour market attachment than the generation before it, particularly for women, which would be expected to increase employment rates at these ages. In addition, the upcoming increase in the state pension age to 67 between 2026 and 2028 will also push up employment rates among 66 year olds.
Where can I find out more?
- Labour market effects of the increase in the state pension age from 65 to 66: Institute for Fiscal Studies (IFS) report summary by Jonathan Cribb, Carl Emmerson and Laurence O’Brien.
- Recent and future patterns of work around state pension age: IFS report by Jonathan Cribb and Carl Emmerson.
- The rise in economic inactivity among people in their 50s and 60s: IFS report by Bee Boileau and Jonathan Cribb.
- Movements out of work for those aged over 50 years since the start of the coronavirus pandemic: Office for National Statistics (ONS) report.
- Labour Market Statistics, May 2022: Institute for Employment Studies (IES) report.
- State pension age increases and the circumstances of older women: Chapter in ‘The Dynamics of Ageing: Evidence from the English Longitudinal Study of Ageing 2002-16’ by Neil Amin-Smith and Rowena Crawford.
Who are experts on this question?
- Bee Boileau, IFS
- Jonathan Cribb, IFS
- Carl Emmerson, IFS
- Ricky Kanabar, University of Bath
- Laurence O’Brien, IFS and University College London
- Andrew Scott, London Business School