The Pandemic and its Painful Consequences for Retirement
The impact on health and wellbeing due to the pandemic have been devastating. With catastrophic effects on the economy, we are still feeling the full force of the consequences to this day. This article examines the effect of COVID on the retirement age and how this will affect the market.
1.45 million people plan to delay retirement by more than 3 years on average. According to new research from Legal & General Retail Retirement, COVID has had more severe effects on the retirement age than initially anticipated. The COVID pandemic has had huge affects on the daily lives of many. In the early half of 2020 we saw a worldwide lockdown: isolation, instability and devastating economic consequences.
During the first quarter of 2021, there was an estimated decrease of 700,000 people working. Redundancies will have made a large proportion, many will have chosen to leave their roles and a small amount may have chosen to retire early. Even those who chose to stay in their jobs were placed on furlough at only around 80% of their initial salary. By 17th March 2021, a third of those over 50 in work had seen a decrease in their monthly household income, by an average of £500. That is an estimated £6000 per year and with the average pension size sitting at around £61,000 this is a loss of almost 10%. This will have severe effects on retirees but the government will also see significant losses of revenue from income tax and taxes on pensions.
“One in 10 pre-retiree over 50s – 1.3 million – have seemingly benefitted, expecting to retire an average of 2 years earlier than they initially planned to. However, – 1.45 million – now expect to delay their retirement by an average of 3 years as a direct result of financial setbacks caused by the pandemic.” -Legal and General
As we can see from the statistics from Legal and General the pandemic has had an adverse effect on the retirement community. Some are looking to retire early, while 2.6 million over 50s anticipate they will have to keep working indefinitely. What is to be taken away from this is that the pandemic hasn't seen the labour force affected equally, rather we have seen an increase in retirement inequality.
Three out of five over 50s workers have seen the pandemic have a direct impact on their retirement savings. For some, this impact has been so severe they have had to entirely reconsider retirement plans. Retirement plans are often the most prioritised and organised task for the elderly; for these plans to be severely affected, it highlights the significant effects of COVID on retirees. In the long run, we may see an increase in the size of the labour force. With more people choosing to delay retirement, we may see an increase in the average retirement age and a simultaneous increase in the number of workers. While this may see an increase in overall production, we may see levels of productivity slide. An increase in older workers will not only mean people with less energy in the workplace but may also provide a disincentive for younger workers if they believe the age of retirement is growing. A further decrease in the UK's chronically poor productivity could see growth levels fall below projected expectations.
So far all that has been mentioned is the effects of COVID-19 on the retirement age. What is yet to be considered is the astronomical effects caused by the cost-of-living crisis. The maximum rate an energy supplier can charge for their bills – was raised, meaning an average annual increase in bills of £693 for around 18 million households. This has led also to the number of people across the UK in fuel poverty climbing to 6.5 million nationwide. This will be having a significant effect on the savings and incomes of those hoping to retire soon. We will more than likely see yet another increase in the number of people delaying retirement. With no foreseeable end in sight, we can expect conditions for those hoping tp retire to get increasingly worse.
References/ Wider Reading
The challenge of unlocking the UK’s low productivity - FT
The UK Energy Crisis and the Cost-of-Living 'Catastrophe' - Madex Economics
Pandemic polarises retirement opportunity gap for over 50s - Legal & General