Being out of work harms your health – even if it's because you've retired

A new report finds that, after a small boost in health, retirement isn't as refreshing as many think.

A curious thing has been happening with regard to retirement patterns in developed countries: we have been living longer and retiring earlier. Between 1968 and 1999, employment amongst 60-64 year old men fell from 80 per cent to 50 per cent – although it has picked up a little since. In Italy, an incredible 80 per cent of 60-64 year olds are not in employment. This has all happened during a period when life expectation has increased dramatically. In many EU countries, a significant number of people could well spend more time in retirement than working.

Of course, as we get more prosperous we would expect to have more leisure. But there comes a point when financing a longer retirement from a shorter working life becomes unsustainable. Most EU countries, with their state pension schemes designed so that the taxes of the declining working generation pay the pensions of the older generation, have reached the point where huge financial burdens are likely to fall on the next generation of workers. One way to square the circle is to promote more private and funded pension provision. However, one of the few countries that was pursuing this policy – the UK – has now decided to change tack and increase state pensions whilst reducing incentives for private provision.

This leaves working longer as the only safety valve in the system. And many countries have, indeed, been raising state pension ages. However, a concern often expressed by those campaigning against such changes is that it will lead to more ill health. It is argued that people will suffer from stress and will not have the physical capacity to continue their working lives without damaging their health further.

Much of the evidence in this area has been mixed. The indications were that retirement and ill health were correlated but it could be that people who are not well tend to retire early. A new IEA study manages to untangle the evidence. It finds that there can be an immediate “holiday effect” from retirement whereby health improves. However, health then deteriorates after a while. It is found that, over the long term, retirement increases the probability of suffering from depression by 40 per cent and the probability of having at least one diagnosed physical condition by about 60 per cent.

This provides considerable evidence that there can be a “win-win” from the government raising the state pension age much more rapidly. Currently, the government expects to raise the state pension age to 68 by about 2047. By that time, in fact, life expectation at retirement will actually increase – longevity is increasing quicker than the state pension age is being raised. A higher state pension age could lower healthcare costs as well as reduce state pension costs. Secondly, the government should deregulate labour markets – especially for older people. Reducing the risks to employers of hiring older people is likely to widen the range of working opportunities available to them – especially with regard to part-time work. Finally, it is important to ensure that state incapacity benefits are used as a route back into work wherever possible and not used as an early retirement option. The government seems to be making good progress here but, if anything, on the first two policy options it seems to be going backwards.

A notable retiree says goodbye to his old workplace. Photograph: Getty Images

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.


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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.