Raising Retirement Age – Labour Market Effects - Chains of Reasoning
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Last updated 29 Jan 2022
In this video we build an analytical chain of reasoning on how the lifting of the state retirement age to 66 years might impact the employment rate.
The state pension age for both men and women in the UK increased from 65 years to 66 years between December 2018 and October 2020. In 2022, a full state pension is worth £180 a week, which most people can receive once they reach state pension age if they have at least 35 qualifying years of National Insurance contributions.
Analyse how the labour market might be affected by an increase in the retirement age.
- An increase in the state retirement age is designed to encourage people to stay in work and reduce the financial cost to the government of the state pension.
- Consequently, it means that people will lose out on pension income of just under £10,000 if they choose not to work beyond an age of 65 years
- As a result, many older people may choose to delay leaving their current job for one year until they reach 66 years.
- This will increase the employment rate among older workers but it might also mean fewer jobs for young people entering the labour market for the first time when they leave school and college
- The impact is likely to be strongest among lower-paid workers, many of whom do not have an additional occupational pension.
- Overall, the effect will be to increase the size of the labour force and also perhaps raise the average age of people in work
Building in some evaluation to add to your analysis
- Impact depends on extent to which people have private pension wealth
- Impact depends on how many people have long-standing health problems – healthier people are better able to delay retirement
- Impact depends on people’s preferences for leisure over working
- Other factors might have more bearing on retirement decisions:
- Interest rates on savings / likely size of retirement income
- Existing mortgage debt
- Availability of part-time (flexible) work for those near retirement