Early retirement increasingly concentrated amongst the wealthy

01 November 2023

Increasingly it is the wealthy who retire early, while poorer people are more likely to stop working due to ill health. And it is those in the middle who are most likely to remain in paid work until state pension age.

These are the key findings of new IFS research released today as part of the Pensions Reviews, in partnership with the abrdn Financial Fairness Trust.

Focussing on people aged 55 to 64 in England, we find that:

  • The increase in employment seen during the 2000s and 2010s was greatest among those with average levels of wealth. The employment rate of the middle fifth (in terms of wealth) rose sharply from 59% in 2002-03 to 76% by 2018-19. This employment rate is considerably higher than that seen among the poorest fifth (46%) or the wealthiest fifth (65%).
  • Early retirement is increasingly a preserve of the wealthy. Back in 2002-03, the fraction of those who were retired aged 55-64 was fairly similar across the wealth distribution: 20% in the poorest fifth compared to 28% for the wealthiest fifth. In contrast, by 2018-19, only 7% of the poorest fifth were retired, while for the wealthiest fifth it was still 24%.
  • Many of the poorest report being out of work for health-related reasons. 39% of the poorest fifth in 2018-19 were not in the labour force but not retired: most of them reporting themselves as permanently sick or disabled or (to a lesser extent) looking after family. This is unchanged from 2002-03 and compares to only 9% of people in both the middle fifth and the wealthiest fifth.

Many more people are in employment in their late 60s and early 70s in England, compared to 20 years ago. However, the patterns of work are very different to those seen below the state pension age:

  • Wealthy people are disproportionately likely to be in paid work in their early 70s. Among people aged 70-74, the employment rate is 15% for the richest fifth, compared to 11% for the middle and 6% for the poorest fifth. This is consistent with existing research that finds that those who work beyond state pension age often do so because they enjoy the work or to keep active, rather than for financial reasons. People working above state pension age are disproportionately likely to be self-employed or working fewer than 16 hours per week.

Jonathan Cribb, Associate Director at IFS, and the author of the report, said, 

As some in their late 50s and early 60s accumulate high levels of wealth, they take the chance to retire early. In contrast, the poorest in this age group often stop work for other reasons, most notably poor health, and spend long periods on state benefits.

One of the most remarkable changes of the last 20 years has been the big increase in the numbers of people on average levels of wealth who carry on working until their mid 60s, and this is not simply due to increases in the state pension age. These people often don’t have the financial security to retire – for example many have an outstanding mortgage."

Mubin Haq, Chief Executive of the abrdn Financial Fairness Trust, said,

Twenty years ago, retiring early was fairly similar across all income groups. Increasingly, it is the wealthiest who are able to take advantage of this privilege, with early retirement plummeting for the poorest. Instead the latter face high levels of being locked out of the workforce, mainly as a result of disability and sickness.

The reduced ability to work in the years before retirement is a major concern. Not only are social security levels inadequate, resulting in high levels of hardship, but being out of work reduces the ability of this group to save towards a private pension.”

Read the report