The UK Spring Budget announced by chancellor Jeremy Hunt on the 15th of March had a very clear undertone, and that was to “un-retire” the over 50s and keep people in work longer, but will it work?
Despite the statement made in Spring Budget that UK unemployment is at a 50-year low, there are, nonetheless, some 6.7 million people of working age who are not economically active.
A June 2022 article by Financial Times stated that the number of people out of work was half a million people higher in the first quarter of the year than it was before the pandemic. This contraction of the UK workforce was largely caused by economic inactivity among young people and older workers.
Official data released at the time indicated that while many of the students that remained in education because the number of job vacancies shrank at the start of the pandemic were returning to work, the same could not be said for the older workers who had stopped working. The result has contributed to a significant drop in economic productivity.
According to the IFS, the rise in economic inactivity in 50 to 60 years olds was primarily down to retirement, with the over-50s leading the charge. The pension freedoms, particularly the ability to access 25% of pension savings tax-free, may have been a contributing factor.
Another contributing factor to the shrinkage of the older workforce is the attitude of some employers who see older workers as being more costly in terms of salaries. Some employers are sadly also still guilty of practising age discrimination, seeing older workers rightly or wrongly as being less technologically literate, therefore, less productive.
The measures announced by Jeremy Hunt in his Spring Budget to help address unretirement include raising the Annual Allowance from £40,000 to £60,000 per tax year, increasing the Money Purchase Annual Allowance from £4,000 to £10,000 per tax year, abolishing the Lifetime Allowance, an enhanced midlife MOT, increasing skills boot camp placements, expanding Sector-Based Work Academy Programme, and a returnerships that focuses on shortening existing skills training programs.
Early retirement at 55, which was incentivised by pension freedoms, has also been under the microscope. Plans may still go ahead to increase the age at which people can access 25% of their pension pots tax-free, from the current 55 years of age, to 57 in 2028.
While some of the measures referred to above may help to promote unretirement, they are not likely to be enough. It has been suggested by some that something more tangible to persuade employers to hire employees aged 55 and over, would be to reduce the employer’s NI rate for this group, for a limited period anyway.
More flexible working hours is another possible remedy for enticing over-55s back to work. If flexible working laws were reviewed, it could encourage people to slow down their retirements over a number of years. It could also encourage those in retirement who don’t want to go back to full-time working.
The cost-of-living crisis has been a catalyst for the recent increase in the number of 50 to 64-year-olds looking to resume economic activity, but according to some think tanks, it’s too early to tell whether this is a long or short-term trend.
The increase in the UK’s ageing population doesn’t just affect the size of the national bill for healthcare costs. It’s more fundamental than that. It means that proportion-wise, there is a smaller number of younger working people trying to fund the ageing population via the taxes they pay.
Encouraging the over-50s who took early retirement to unretire and getting more older retirees back to work is essential. It will not only help to increase the national economy and allow older workers to boost their retirement savings which not only helps them to enjoy a more comfortable lifestyle when they do eventually retire for good, it also lessens the strain on younger workers.
While the tax incentives and initiatives recently announced are welcome, the government needs to do more.