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Surge in early retirement is fuelling inflation, says top Treasury mandarin

·2-min read
pensioner
pensioner

A surge of older workers taking early retirement is fuelling inflation and limiting the size of the economy, the Treasury’s top economics mandarin has warned.

Clare Lombardelli, chief economic advisor at the Treasury, sounded the alarm over older people leading a “sharp rise” in economically inactive working age Britons, as widespread staff shortages stoke pay pressures. Economically inactive people are those who are not in a job and not looking for work.

Ms Lombardelli said the exodus of almost 500,000 workers has been largely driven by people in their 50s and 60s leaving the jobs market.

A tighter labour market is helping to push pay growth higher by forcing businesses to compete for talent, stoking fears of a dreaded wage-price spiral emerging. More retirees will fuel inflation as companies hike pay to allure the smaller pool of workers still available.

In a rare public speech, Ms Lombardelli warned the UK is one of the only countries where inactivity among older workers remains higher than pre-pandemic levels.

She said: “This is a human problem. Economic inactivity can be damaging to individuals, risking lower living standards, lower retirement income, and potentially poorer physical and mental health.

“It is also a macroeconomic problem. The fall in labour availability limits the potential size of the economy and increases the pressure on inflation.”

Ms Lombardelli said more work “to understand and tackle this trend” is underway in government after the surge in retirees.

The Bank of England is watching pay growth closely to determine whether a faster pace of interest rate rises is needed.

The Institute for Fiscal Studies (IFS) estimates that economically inactive workers in their 50s and 60s have increased by more than 250,000 since before the pandemic. More than half of that group who left the workforce retired.

Earlier this month the think tank said this is the “reversal of a decades-long trend” and is “economically important” given the record number of job vacancies. The inactivity rate among people in their 50s and 60s has risen to 36.5pc, after falling over two decades.

Bee Boileau, economist at IFS said: “Our findings suggest that this rise in inactivity is driven by a lifestyle choice to retire in light of changed preferences or priorities during the pandemic.

“People in occupations where remote work is easier were actually slightly more likely to leave work for inactivity, which suggests that the increase in working from home may have reduced the appeal of staying in employment for some.”

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