Many of us dream of retiring early and spending our post-working life indulging in our hobbies and passions. But since the state pension age went up from 65 to 66 between late 2018 and late 2020, employment rates among 65-year-olds have reached record highs.
According to a report from the Institute for Fiscal Studies (IFS), the increase in employment among this age group since the change was implemented is as big as the one that occurred between 2005 and 2017.
Laurence O’Brien, a Research Economist at the IFS, described the increase as “striking”, so why exactly is this happening?
The IFS data suggests that the sharp increase in employment among 65-year-olds is being largely driven by people in less affluent areas, and those who have lower levels of education.
Indeed, figures show that since the state pension age went up, the employment rate among 65-year-old men rose by 10% in the most deprived areas of the UK, compared with 5% in the most prosperous areas.
Similarly, in the most deprived places, the women’s employment rate at age 65 went up by 13%, compared with 4% in the most well-off places.
This suggests that without a state pension, people living in less affluent parts of the country wouldn’t be able to afford to retire, or at least enjoy the kind of lifestyle in retirement that they’d wish to have.
It also points to a lack of financial education in these locations, with many lacking not only the means but also the knowledge of how to prepare their finances for retirement in advance.
Another point to stress is that the effects of the state pension increase on men and women have not been the same.
Since the change was made, an extra 7% of 65-year-old men have stayed in paid work, compared with 9% of women in this age group.
While the report applies a broad brush to large numbers of people, it is clear that socio-economic and demographic factors are continuing to have a profound impact on the life decisions people feel able to take across the UK.
However, there was a ray of light in the IFS report, with figures showing that most people who decide to delay retirement since the increase in the state pension age are likely to be financially better off.
The report notes that these people would only need to work about 20 hours a week at the National Living Wage to compensate for losing their state pension income, and most 65-year-olds are earning more than this every week.
But crucially, it states that they also miss out on the many benefits of retirement, such as enjoying lots of leisure time, as a result of working for longer.
Figures showed that 65-year-olds are working 1.8 million hours a week extra since the state pension age was increased – a measure of just how much precious time they’re missing out on because they’re still working.
If you would like to know what your options are for retirement, contact one of our advisors and we will be happy to guide you.