What the 'great unretirement' means for Britain's economy - Sarah Coles

Figures from the Office for National Statistics had highlighted an exodus of older people from work during the pandemic. Back in July, it found that since the onset of the health crisis, more than 385,000 people over the age of 50 had moved into economic inactivity – which means they weren’t working or looking for work.

And while in many ways, when and why you choose to stop working is nobody’s business but yours, when so many people do it at the same time, it creates all sorts of problems for the wider economy. The shrinking labour market is putting pressure on businesses - some of whom can’t recruit the employees they need: there are more than 1.13 million unfilled vacancies in the UK.

Even where employers have managed to fill roles, they need to work harder to retain staff, and as a result are more likely to offer pay rises. Figures for the three months to December show that regular pay, which doesn’t include bonuses, was up 6.7 per cent in the year – the strongest growth rate seen outside the pandemic period. And while this is actually a pay cut after you take inflation into account, there’s the risk these wage rises will feed through into price increases. The Bank of England’s chief economist Huw Pill has warned that this could end up fuelling inflation even while energy costs fall.

It’s one reason why the government is so keen to get people back to work. In January it emerged just how keen they were when it was leaked that they were even considering tax breaks for the over 50s who returned to work. It later confirmed it was part of a smorgasbord of options on the table which also included changes to the benefits system.

We didn’t get any more detail at the time, and we may never do so, because while they were busy making plans, the problem started to sort itself out. New figures this week showed that older people were returning to work anyway. While the number of inactive people aged 50-64 isn’t falling anywhere near as consistently as younger age groups, it’s still well down from the peak in the summer. But before anyone gets too excited about a bright future packed with enthusiastic older workers, it’s worth exploring exactly why older people are returning, and what it means for the type of person likely to be making their way back.

There’s a reasonable chance that an awful lot of them are being forced back to work because they can’t afford retirement. Recent data from the Pension and Lifetime Savings Association showed the cost of a moderate retirement had risen by an eyewatering £2,500 a year over the course of the crisis, which means many people simply don’t have enough cash to get by. The ONS study of those aged 50-65 who had left work since the onset of the pandemic found that only 38 per cent of those in their early 50s, and 55 per cent of those in their early 60s, were confident their retirement savings would meet their needs. Two thirds of them said they would consider returning to work for financial reasons. You have to wonder whether it’s such a win to attract back a cohort who desperately don’t want to work but have discovered that they have to.

Meanwhile, there are plenty of other people who are keen to work, but can’t. The number who are economically inactive because of long term sickness has been rising since 2019 – from around 2 million people to around two and a half million. Not all of them are older, but older people do make up the biggest chunk of those who are long-term sick for health reasons.

The rise of ill health is likely to have been exacerbated by lifestyle changes during the pandemic, from increased inactivity to loneliness and isolation. It will also have been affected by problems accessing healthcare. The ONS study found that one in five of the over 50s who had left work since the onset of the pandemic were on a waiting list for NHS treatment. This rose to 35 per cent for those who left their previous job for a health-related condition. It doesn’t matter what other incentives are thrown the way of this group, the only solution is access to healthcare - and this is going to be an expensive nut to crack.

There’s also likely to be people leaving work in order to care for loved ones. Around a fifth of women aged 55-59 provide unpaid care for someone, as do around one in six men aged 60-64. These people may ideally want to work, but it just isn’t feasible without well-funded and plentiful social care. Unfortunately, we’ve already watched endless successive governments kick this particular can down the road, because it’s too difficult and expensive to tackle.

So while the drop in inactivity among older workers may be fairly good news for the government and the Bank of England, it may not be such a balm for employers, working with demotivated and recalcitrant staff. Likewise, it’s hardly a major boon for those people who have seen their longed-for early retirement so rudely interrupted.

Inflation figures

There was some good news on inflation this week, with the rate dropping back slightly to 10.1 per cent. It’s not an enormous decline, but it’s the third month of falls, and there’s every hope this is part of a sustained slide. Unfortunately, it’s not going to be a particularly steep descent, and with oil prices remaining volatile, it could be bumpy too.

Petrol prices eased in January, falling 5.9 pence per litre as worries about a global recession depressed oil prices. However, it won’t last. We saw the price of oil turn at the end of the month, and start climbing again – as demand boomed from a reopened China and more supply issues pushed prices up. We can expect the oil price to remain volatile, which could make filling up at the pumps more painful in the months to come.

We’re also wrestling with energy prices, and while they may be falling on wholesale markets, the price cap and guarantee means our bills aren’t any lower yet. In fact, instead of price drops, we’re going to see another hike in April, when the price guarantee rises another £500 to £3,000, and we lose the £400 government support. Lower wholesale prices will eventually feed through into the price we pay as we enter the summer – which feels an awfully long way away. We’ll need to wait for good news on food inflation too, which was up 16.7 per cent in a year. Prices have been sky-high for food producers, which doesn’t just affect what they’re producing today, it also feeds into decisions they make about what crops to plant or animals to breed for the future. When the runaway cost of feeding and caring for animals persuades farmers to slaughter more, and breed fewer dairy cows, it will hit milk production further down the line too. As a result, higher food prices are likely to stick around for longer.