The Institute for Fiscal Studies (IFS), UK’s leading in independent economics research, has published a report that offers interesting insights into the role played by an individual’s wealth in deciding the age at which they retire. The report finds that the people who are typically categorised as occupying the middle-income bracket stay working the longest. On the other hand, the wealthiest people choose to retire early, while the poorest are often forced out of work due to various health conditions. The basis for these insights, the report itself, is the latest edition of a multi-year project by the IFS that aims to study the consequences of the prevailing pensions policy in the UK. The economic environment and individual behaviour concerning living standards in retirement are just some of the things that the Institute will be looking at in its multi-year analysis.
The publication focuses on people aged between 55 and 64 years in England as the basis for its study. According to the report, the least wealthy 20% of the households in the country had less than 65K pounds in terms of financial wealth and housing. It also found that the richest in the nation enjoyed wealth in this category above £650,000, while the middle 20% enjoyed a wealth of £205,000 to £385,000. According to Jonathan Cribb, Associate Director for the Institute, folks who have managed to accumulate a lot in the golden years of their lives tend to exercise their choice to retire early. In the meanwhile, those in the middle are found to be more likely to keep working until the state pension age. These findings simply serve to underscore the fact that voluntary early retirement in our societies is the privilege of a select few.
Back in 2002-2003, the age at which people retired tended to be very similar across the various income brackets. For example, 28% of the wealthiest fifth aged 55-64 at the time were retired, while 20% of the least wealthy one-fifth of the population were retired. By 2018-2019, 24% of the wealthiest fifth in the same age group was retired as well. However, only 7% of the least wealthy fifth were retired. The difference between the two figures is sharp, to say the least. The least wealthy who have retired in the age group also report that they are not so much retired as forced out of work. This is due to them suffering from various health conditions, no doubt to the poor quality of resources that they have access to. The report found that most in this income category – about 39% – reported themselves as being permanently sick and/or disabled or to a lesser extent, looking after their family.
Those who are forced into retirement in this manner often have to spend their later days on state benefits. “One of the most remarkable changes of the last 20 years has been the big increase in the number of people on average levels of wealth who carry on working until their mid-60s, and this is not simply due to increases in the state pension age. These people often don’t have the financial security to retire – for example, many have an outstanding mortgage”, Cribb added. It is extremely concerning that people are forced into early unemployment before their state pension age. This demographic represents a major burden in the national budget as unfortunately, the social security levels in the country remain inadequate to provide for their needs at the scale that is required. The defecit ultimately results in more hardship for the elderly of the nation, as they lose the ability to save towards a pension of their own and are forced to subsist on inadequate government support.
The gender dimension in this disparity is also pronounced. 81% of men aged 55 are gainfully employed, which falls to 44% by the time they are 65. Employment falls from 74% to 34% for women of the same age. The long-run trends in employment and retirement are also very different in terms of the gender disparity. For example, the employment rates for men in their late 50s and early 60s are very low. On the flip side, women of the same age are more likely to be actively employed.
On the other side of the coin, a greater percentage of people in their 60s and 70s are engaged in gainful employment, especially compared to two decades ago. However, the rewards they are likely to earn are skewed disproportionately in favour of the wealthiest. The employment rate for people aged between 70-74 is only 6% for the least wealthiest in the country, and 15% for the wealthiest. According to the Institute, these findings reflect previous research that found that people who work beyond their pension age often do so because they find their work enjoyable, or find remaining active enjoyable, rather than remaining in employment due to financial restraints. For example, people who opt to work beyond the state pension age are most likely to be either self-employed or employed for less than 16 hours per week.
In considering the results of the report, it’s also important to consider the role the pandemic might have played in affecting employment trends. According to the report, the UK stands out among other OECD countries for having falling labour force participation numbers in the older demographic since the pandemic. However, the report also suggests that the changes caused by the pandemic are relatively small in comparison to the long-term trends that had started earlier in the 1990s. It is difficult therefore to predict whether the post-pandemic changes in them will continue going forward into the future, and how long, if they do. If the effects of the pandemic were to be left aside however, the pre-pandemic data suggests that employment among older people will continue to rise. Under ideal conditions, this rise would mean that the burden placed on the state would be lessened due to traditionally dependent demographics – however, this is not the case. The rise in employment is chiefly centred around people in the middle-wealth category, as opposed to low-income individuals, who are the most reliant on government support programmes.
(Theruni Liyanage)