Encouraging retirees to return to work is not the answer to reducing the post-Covid rise in economic inactivity, according to a think tank which recommends that government policy should instead focus on increasing participation among mothers and the long-term sick.
Economic inactivity has risen by 830,000 since the start of the pandemic, and 76% of this group is aged 50 and above. This figure has attracted significant attention from the government in recent months, with the chancellor telling recently retired people they should “get off the golf course” and return to work.
A package of proposals to improve workforce participation is set to be announced in the Budget next month.
However, the Resolution Foundation’s Post-pandemic participation report suggests that government policy should not focus solely on this group, as those who have recently retired have disproportionately come from high-paying jobs, and will be living comfortably in retirement and unlikely to want to “unretire”.
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Instead, the government should focus on encouraging women with children into jobs and making it easier for those with disabilities to remain in employment.
Louise Murphy, economist at the Resolution Foundation, said: “Britain did a great job of getting more people into work in the 2010s.
“We need to reboot progress on getting people into work, but we’re not going to achieve it by persuading the recent Covid cohort of older workers to ‘unretire’.
“Instead, we need to do more to encourage mothers in low-income families into work, and help people who need to take periods of time off for ill-health stay attached to their jobs.”
The report says: “Retaining the relationship between the worker and employer with early intervention is key since we know that people who are economically inactive due to long-term sickness or disability are four times as likely to re-enter work after a few months of sickness leave than they are to re-enter work after a period of over two years.
“Policymakers should consider introducing a ‘right to return’ period, during which employers must keep jobs open to workers who are away from work due to sickness or disability.”
Government policy suggestions have also looked at tightening up the benefits system to encourage more people back into work. However, the Resolution Foundation states that only 10% of 55 to 59-year-olds who have not returned to work since the pandemic are receiving state benefits.
We need to reboot progress on getting people into work, but we’re not going to achieve it by persuading the recent Covid cohort of older workers to ‘unretire’.” – Louise Murphy, Resolution Foundation
The report says: “Learning from history shows us that those who take early retirement rarely return to the labour market when they have been out of work for some time. For example, someone who took early retirement during the summer of 2020 has now been economically inactive for two-and-a-half years – historically, only 2% of people in this situation return to work every three months, compared to 6% of those who have been out of employment for three months or less.”
Raising the state pension age has been suggested as a potential mechanism to retain people for longer, but the report urges caution over this as it is likely to disproportionately affect those who are less wealthy.
It says reforms to the private pensions system are more pressing. Currently, the age at which someone can access tax-relieved private pension wealth is 55 and, while it is set to rise to age 57 from 2028, it will remain 10 years below the state pension age and supports early retirement, particularly for wealthier individuals.
The report also recommends a tighter cap on tax-free lump sums and relaxing defined benefit pension scheme rules that penalise people who re-enter employment.
The findings chime with a separate report published by consultancy LCP, which finds retirement is not the main reason for the increase in economic inactivity since the start of the pandemic. Its analysis of ONS labour market figures found the number of long-term sick has risen by 353,000, and this group accounts for more than half of the growth in inactivity over that period.
Steve Webb, partner at LCP said: “There is a real risk of the government ‘barking up the wrong tree’ when it comes to the growth in economic inactivity. Policy solutions which aim to reduce early retirement or to encourage the retired out of retirement are likely to have only limited effect in reversing recent trends. Instead, the policy effort needs to be focused around understanding why flows into long-term sickness have grown and on early intervention to prevent people’s health from deteriorating.
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“Without action, there is a risk of a growing core of people stuck in long-term receipt of sickness benefits with limited prospect of returning to paid work and damaged prospects for retirement”.
