A million older workers fall into unemployment trap

People aged 50 to 64-year-olds have an economic inactivity rate of around 27 per cent, more than double that of those aged between 35 and 49.

Of these 3.6m people, about 1m left work involuntarily due to redundancy, ill health, caring responsibilities and other issues, according to thinktank the Centre for Ageing Better.

The more flexibility we have on these things the better

Malcolm McLean, Barnett Waddingham

For people who drop out of employment in later life, finding work again is considerably harder than for younger cohorts. Thirty-eight per cent of unemployed people over the age of 50 have been out of work for more than a year, and the study found that only 16 per cent of those referred to the government’s Work Programme are successful in finding a job.

Jemma Mouland, senior programme manager at the Centre for Ageing Better, said: “It’s not just the numbers of people who are facing these issues but the severity of the challenges they are facing.”

More flexibility needed

The majority of people Mouland and her team spoke to said there were multiple factors barring them from returning to work, meaning that finding a solution will be complex.

She said the problem was at least partly cultural, with employers tending not to consider older workers to be as valuable as younger peers, and that employment support should be improved to help them back into work.

However, the impact of pensions policy on this cohort is clear. “With state pension age going up obviously these individuals are going to be in this situation for longer,” said Mouland.

The Centre for Ageing Better has not yet made concrete policy recommendations, but Mouland said introducing greater flexibility to state pension access or pension credit could prove useful.

“Broadly what our research pointed to was a need for greater flexibility in the benefit system,” she said.

The pensions industry has now set its sights on addressing this problem, with the Pensions and Lifetime Savings Association consulting both on how to help people work longer and take advantage of options to draw their pensions while still working.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said government policy change is needed alongside these efforts to change saver and employer behaviour.

“The government needs to look at its pension tax policy, which actively penalises those who take career breaks,” he said. “Employers need to be encouraged to adapt employment terms to accommodate the needs of older workers.”

Easy answers evade the industry

Nailing down specific policies to cater for those who cannot escape unemployment traps remains tricky.

There is no magic bullet solution to the problem, admitted Malcolm McLean, senior consultant at Barnett Waddingham, who suggested “some sort of modification of the rules on credits for the state pension”.

He said a rethink of the annual allowance could cater for anyone whose income flows are volatile. “The more flexibility we have on these things the better. What you’re saying is people can put more money into their pension while they’re in work.”

But McLean regretted that this change was unlikely to appear in the Autumn Budget next week, predicting instead a further watering down of the allowances.

And while he said early access to the state pension would be generally useful as the SPA increases, he warned against viewing a reduced rate as a solution for unemployment traps.

“This is a person who is going to be struggling to get the full rate of pension anyway, so if you take it early that might make the problem even worse.”