More than 40% men who retire before 65 feel they are forced to do so because of ill-health
or redundancy. New research by Sarah Smith, published in the March 2006 issue of the
Economic Journal, shows that these people are significantly worse off in retirement,
measured by their spending on food, than they were before retirement.
This experience of retirement is in marked contrast to what happens when retirement is
voluntary. Among those who retire voluntarily, food spending is typically maintained at preretirement
levels.
These findings come from an analysis of the British Household Panel Survey, which tracks
the same households over time, and allows a direct comparison of spending and wellbeing
before and after retirement.
These findings have important implications for current government policy:
• Looking at what happens to people’s financial situation and their spending after
retirement is one way of assessing whether people have saved enough for
retirement.
• The fact that most people who retire voluntarily are able to maintain their preretirement
level of spending on food, suggests that they are not forced to economise
through lack of resources – although average incomes are lower in retirement
compared with pre-retirement levels.
• This evidence suggests that most current retirees have saved enough – through
their employer’s pension or through their own private saving, but that those who
retire involuntarily early find things much harder.
• There is a current debate about whether to raise the state pension age (from 65 for
men); this research shows that most men leave work before 65, and that many are
forced to do so because of ill-health or redundancy. Simply raising the state pension
age will not be enough to raise ‘effective retirement ages’, and will place further
financial hardship on a group who are already finding things hard in retirement.
ENDS
Notes for editors: ‘The Retirement-Consumption Puzzle and Involuntary Early Retirement:
Evidence from the British Household Panel Survey’ by Sarah Smith published in the March
2006 issue of the Economic Journal.
Sarah Smith is at the Centre for Market and Public Organisation at the University of Bristol.
For further information: contact Sarah Smith on 0117-954-6945 (email:
sarah.smith@bristol.ac.uk) or Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).