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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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.