AJ Bell press comment – 16 August 2022
- Over 65s are returning to work in their droves, with 174,000 more in employment in the three months to June this year compared to the start of 2022, official data shows (A01: Summary of labour market statistics - Office for National Statistics (ons.gov.uk))
- The employment rate of over 65s stood at 11.9% in April-June, the highest figure on record and 1.4 percentage points higher than at the start of the year (Employment rate 65 + People: % - Office for National Statistics (ons.gov.uk))
- By contrast, the employment rate of people aged 16-64 has dropped marginally since the start of 2022, from 75.6% to 75.5%
- Surging inflation is the most likely reason for this ‘Great Unretirement’, with those who quit the workforce during the pandemic being forced to return to boost their income
Tom Selby, head of retirement policy at AJ Bell, comments:
“For millions of retirees, the last two years has probably felt a bit like sailing in a boat that’s been capsized by a giant tidal wave, then finding yourself swimming in shark-infested waters.
“Aside from the obvious health impacts, the Covid pandemic and subsequent lockdowns resulted in vast numbers of over 65s exiting the labour market. For some this may have been through choice, but for others it will inevitably have been enforced.
“Whatever the reasons, those who stopped working will have been hoping their retirement pot and any other assets they had would be enough to pay their costs and support their lifestyle in their later years.
“This has clearly been impossible for lots of people, and we have seen the number of over 65s in the workforce surge by 174,000 this year, effectively reversing the ‘great resignation’ we saw during the pandemic and replacing it with a ‘great unretirement’.
“Rising inflation and the prospect of an eye-watering spike in energy bills in October and January are the most likely reasons for this shift.
“It’s important to remember that, in some cases, returning to the labour market will be a good thing. Those who never wanted to leave their jobs during the pandemic might be happy to find work and grateful for the extra income ahead of the huge spikes in energy bills coming down the track.
“However, for others this will be forced, with rising living costs blowing a hole in people’s retirement plans and leaving them with no choice but to earn extra cash to supplement their pension.”
Source: ONS
Inflation and pensions
“Surging prices are putting pressure on everyone’s incomes, and older people are certainly no exception.
“While some retirees, such as those receiving public sector pensions, will be lucky enough to have inflation protection baked into their incomes, many will not.
“Even those with guaranteed defined benefit (DB) pensions from the private sector often have their inflation increases capped. Furthermore, the majority of annuities people purchase have no inflation protection at all, and even those with inflation protection usually have limited increases. All of these people will therefore be facing a squeeze on their living standards.
“For those taking an income through drawdown, there is at least the possibility of your investments growing over the long-term. However, hiking withdrawals to keep pace with the rising cost of living could risk turning a sustainable plan into an unsustainable one – particularly where large withdrawals are coupled with falling markets.
“This isn’t to say that nobody should do this, but it’s crucial to have sustainability at the front of your mind when making retirement income decisions and to understand the potential consequences of withdrawing too much, too soon from your pot.
“This is why it is vital to review your drawdown withdrawal strategy regularly and be willing to adjust your plans if circumstances change. Failure to do this could leave you at risk of exhausting your fund early and relying on the state in later life.”
