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  • Writer's pictureSusan Wakelin

What is the impact of early retirement for employers?

Updated: May 25, 2023

According to a House of Lords committee, early retirement is one of the main reasons for increasing economic inactivity and labour shortages in the UK.

Early retirement

According to the Office for National Statistics, the number of people not in work and not looking for work (known as economic inactivity) has increased by 565,000 since the beginning of the coronavirus pandemic.

Rising inactivity has been highlighted as causing serious problems to the UK economy, where labour shortages put pressure on inflation, damage growth and reduces the revenue available to finance public services.

Where have all the workers gone?

A recent report called "Where have all the workers gone?" by the Lords economic affairs committee was published following an inquiry into what is causing the reduction in the UK's labour supply.

The inquiry found that there are four main reasons for the UK's labour shortages:

  • early retirement;

  • increased sickness;

  • migration; and

  • an ageing population.

The committee's report recommended that the Government further investigate the reasons for economic inactivity, including the potential link between pensions and inactivity and the impact of the furlough scheme during the coronavirus pandemic.

"Why have so many workers left the workforce, after years of declining inactivity?" – Lord Bridges of Headley, Chair of the House of Lords economic affairs committee

Early retirement?

The Lords economic affairs committee report also found that the largest increase in inactivity was among the fifty to sixty-four year olds, which was mainly due to early retirement.

The report confirmed that "It is unclear why earlier retirement has risen. COVID-19 pandemic, including the furlough scheme and increased redundancies, could have prompted some people to consider earlier retirement. Other possible explanations include increased savings during the pandemic and the UK's pensions flexibilities, which could have enabled earlier retirement. Looking ahead, the majority of those over 50 who have left the workforce since the COVID-19 pandemic state that they neither want nor expect to return to work."

The other reasons for labour shortages in the UK, include:

  • sickness-related inactivity, which is mainly among people who were already out of work, rather than people leaving their job because of ill health;

  • changes to the structure of migration after Brexit, which has had a particular impact on lower-paid sectors such as agriculture, hospitality and care. The committee report found that the prioritisation of skilled workers under the UK's new immigration system has contributed to a "mismatch" within the labour force and has accentuated labour shortages in some sectors; and

  • an ageing population, which has resulted in a reduction in the proportion of the population seeking work.

What can employers do?

If these changes to labour supply persist, the report suggests that some employers will have to adapt by replacing labour through automation or changing workers' terms and conditions.

In the meantime, the committee report has recommended that the Government review these concerns and consider whether they should respond with changes in policy.

SWan HR Consultancy (London and Kent)

SWan HR is an HR consultancy that specialises in HR support for small to medium sized businesses in the South East.

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SWan HR was founded by Susan Wakelin, MCIPD, who is a qualified HR professional with over thirty years' experience, from setting up, auditing and improving HR functions to management coaching and supporting organisations through difficult situations, transformation and change.

SWan HR provides a broad range of tailored HR services including an HR audit, HR advice, HR outsourcing, HR coaching and project work for all businesses.

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