New IFS research, funded by the Joseph Rowntree Foundation, shows that 48% of 50- to 70-year-olds who had recently left the workforce in 2020-21 ended up in relative poverty.
This was significantly higher than the percentage of individuals who were in poverty after leaving the workforce in pre-pandemic years - even though overall poverty rates declined in 2020-21. Older people who stop working often never re-enter the workforce, so this group may be experiencing long-term poverty and greater hardship in the current cost of living crisis.
The research is a pre-released chapter from the forthcoming IFS annual report on living standards, poverty and inequality. It also found that, in 2020-21, 50- to 70-year-olds who had stopped working in the last year:
- cut their food expenditure by around £60 per week on average - much more than those who had stopped working in previous years, who on average did not substantially change their spending upon leaving the workforce;
- had lower levels of well-being than previous cohorts of people who had recently stopped working. This did not simply reflect an overall deterioration in well-being during the pandemic: in 2020-21, those who had recently stopped working experienced a much bigger fall in their well-being than those who had been out of the workforce for longer;
- were less likely to receive pension incomes than those who had stopped working in previous years. Nearly half (49%) did not have access to either private or state pensions, compared with 43% of those who were newly inactive in 2019-20.
Taken together, this suggests that many older workers who left the workforce in the first year of the pandemic were not retiring in comfort. Instead, labour market disruptions and the additional health risk faced by older workers may have ‘forced' many workers into early retirement, even without state or private pension income to support them, pushing down their living standards and well-being.
These negative outcomes are only seen amongst older people who were newly inactive in the first year of the pandemic. While an unusually large number of people also left the workforce the following year, older workers who had recently stopped working in 2021-22 had similar living standards and well-being to pre-pandemic cohorts, suggesting that they were more likely to have left the workforce voluntarily and on more comfortable incomes.
Xiaowei Xu, a senior research economist at IFS and an author of the research, said:
‘It is often assumed that older people who left the workforce during the pandemic were wealthy individuals retiring in comfort. Our analysis shows that those who left in the first year of the pandemic experienced a sharp rise in poverty, despite overall poverty rates falling that year, and also suffered large falls in well-being. Some of this group might well be amenable to coming back into the workforce with the right opportunities, and there are signs that some are returning already. If the government wants to get this group back to work, the success of policies to support older workers, such as the “mid-life MOT”, will be critical.'
JRF Chief Analyst Peter Matejic said:
‘A high-participation, high-inclusion labour market is vital to reducing poverty. It would help households to boost their incomes, and make sure people are not excluded from the financial, social and health benefits of good work. This research shows many older workers were swept out of work by the coronavirus pandemic rather than this being a positive choice. Supporting people back into employment should be a priority for the government alongside ensuring that those who aren't working can afford the essentials. The government needs to make sure universal credit payments when you are out of work never fall below the amount food, utilities and other essentials cost.'