The Institute for Fiscal Studies (IFS) has published research funded by Joseph Rowntree Foundation looking at older worker retiring early because of COVID. It’s often assumed that older people who left the workforce during the pandemic were largely wealthy people retiring in comfort. The report, entitled “Living standards and inequality” debunks that presumption as it found this wasn’t the case for many. The report found that nearly half of the older adults who had left the workforce in 2020/21 ended up in relative poverty.
Some of the report’s key findings include:
1. Average (median) disposable household income before deducting housing costs rose by 0.5% in 2021/22 but remained 1.2% lower than its pre-pandemic level. The relatively muted increase in 2021/22 reflected a 4.8% rebound in nominal incomes being largely offset by a sharp rise in inflation. A fall in housing costs over the pandemic means that average incomes measured after deducting housing costs were 0.2% higher in 2021/22 than in 2019/20.
2. Income growth was stronger among poorer households, with those in the bottom third of the distribution seeing a rise between 2019/20 and 2021/22 of 1.5% before deducting housing costs and 2.7% after deducting housing costs. Large falls in employment income among this group were more than offset by a rise in benefit incomes (in particular, the temporary £20 uplift to Universal Credit) and a fall in housing costs, both of which affected low-income households more than households further up the income distribution.
3. The increase in benefit incomes among low-income households did not simply reflect a fall in employment income. Average benefit receipt in 2021/22 was higher than in 2019/20 at every level of earnings, due to the £20 Universal Credit uplift that persisted until October 2021 and the increased generosity of Universal Credit for in-work households from November 2021. The share of households in the bottom third of incomes that received disability benefits rose by 26%, from 12% in 2019/20 to 15% in 2021/22, driven entirely by an increase among working-age households.
4. Individuals aged 50–70 who moved from employment into economic inactivity in 2021/22 were more likely to end up in poverty (in the year of exit) than those who became inactive in previous years. This is despite poverty rates falling among 50- to 70-year-olds who had been inactive for more than a year (that is, it does not reflect an overall fall in living standards among inactive individuals in the age group). Measures of self-reported well-being also declined more for recently inactive individuals in 2020 than for those who had been inactive for longer. For people who became inactive in 2021/22, outcomes were much more similar to those seen among people who became inactive pre-pandemic, suggesting that there is particular cause for concern for the 2021/22 cohort.
5. This decline in living standards and well-being challenges the perception that exits into inactivity over the pandemic were driven by wealthy individuals who could afford to retire in comfort. Instead, many of those who left the workforce in 2021/22 may have been ‘forced’ into early retirement, with an associated hit to their living standards and well-being. People who become inactive at older ages often never re-enter the workforce, so it is likely that many in this cohort will experience persistently low living standards. In contrast, those who became inactive in 2021/22, when the labour market disruption and health risk had largely subsided, are more likely to have done so out of choice.