Long term economic impact of mass early retirement ?

hugheskevi

Few points to consider on the financing side:

• We are currently at 'peak DB' with pensions paid from DB pensions at the highest they will be. From now the total paid out will decline as the decline of DB schemes from the 1990s (and earlier, but especially from 1990s onwards) takes effect on pension paid out.
• Public service pensions are a bit behind, but the change to having a Normal Pension age equal to state pension age will increasingly take effect. Whilst the NPA is effectively meaningless given members can retire earlier or later with actuarial reduction/enhancement, many have an irrational attachment to NPA, partly from ignorance and not knowing it can be taken earlier, and partly from loss aversion (eg if they built up a lower pension with an NPA of 60 they would be happy to take that at 60, but a higher pension payable from age 67 which is reduced due to payment at 60 is unwelcome due to the reduction - even if it greater than the pension the individual would have been happy to have received at age 60).
• State Pension is increasing, especially for women. In 2010 it was 60 for women and 65 for men, but is now 66 for all and will be 67 in 2028
• Minimum pension age is increasing from 55 to 57 in 2028 (subject to legislation)

This will all limit the financial ability of individuals to retire early, although pension flexibilities mean available resources can all be used early if that is what a member wishes. The range of exit possibilities from the labour market are:

• Completely voluntary retirement, at whatever age
• Redundancy (or business failure)
• Illness preventing work
• Some form of financial penalty which acts as incentive, eg, inability to take pension whilst working and reaching NPA, a pension pushing you into a higher tax bracket, etc

The consequence of the financial position is that voluntary retirements will be later, there will be more redundancies among older people (as they do not retire) and there will be more people unexpectedly stopping work due to illness as the working population increases in age. There will be fewer incentives to retire from pensions, as DC is usually unconnected to salary, whereas DB pensions can come with all manner of rules, some of which can be very antiquated and paternalistic (eg having to reduce hours to start receiving pension income, abatement of pension if pay+pension exceeds full-time salary, etc). 

I can't see any reduction in average age of retirement unless it is at least to a degree non-voluntary, eg, someone is made redundant, cannot find employment, and reluctantly chooses to retire rather than be unemployed.

iamnotasoldier

hugheskevi said:

Few points to consider on the financing side:

• We are currently at 'peak DB' with pensions paid from DB pensions at the highest they will be. From now the total paid out will decline as the decline of DB schemes from the 1990s (and earlier, but especially from 1990s onwards) takes effect on pension paid out.

Excellent point. We may well be at Peak Early Retirement & future generations will align more with the SP age. I wonder how they will view the "Boomer" generation that enjoyed these generous DB pensions, which could facilitate early retirement ?

green_man

It is an interesting question.

I retired at 47 (now 54) I was a higher rate tax payer and if I was still working I would have continued to be so. Since retiring I have been a non (income based)tax payer.  

So is the gov drawing in less tax due to my retirement? I don’t think so.  Basically someone else is doing my job, someone will have moved up into my role, this allows the usual job progression you get in a large company and ultimately enables them to take on more graduate level starters, without these opportunities it’s this age group than can struggle to establish their careers and become a burden on the state.

So overall I don’t think retiring early does  reduce tax take.  The only time it would be a big issue is if we have near 100% employment.

iamnotasoldier

green_man said:

So is the gov drawing in less tax due to my retirement? I don’t think so.  Basically someone else is doing my job, someone will have moved up into my role, this allows the usual job progression you get in a large company and ultimately enables them to take on more graduate level starters, without these opportunities it’s this age group than can struggle to establish their careers and become a burden on the state.

Yeah that is true as well. I think hugheskevi's points are pretty important too, the end to the DB pensions and the evening up of the female / male SP ages etc all going to have an impact. As I said wonder what the future generations will think of this time ?

Malthusian

What's the long term economic impact of the weekend? It represents about the same amount of work "lost" to the economy / society / taxman / whoever as early retirement.

If we assume that productive life is 50 years (e.g. 18-68), spending 30% of the week unproductive is equivalent to retiring at 54.

Naturally everyone's productive lifespan is different from person to person and profession to profession. The point is that if retiring in your mid-50s represents some sort of social or economic threat to anyone but the retiree (who is taking the chance that they've got enough in the bank), so does the weekend.

If early retirement is some sort of problem that will leave us short of workers / tax revenue / whatever, it would make far more sense to abolish Saturday (maybe Sunday as well, unprecedented times and all that) and share the burden out across the whole population, rather than flogging aging horses into the grave. We could rename them Whittiday and NHSday to boost national morale.

Thrugelmir

With fewer children being born. The long term projections are for the population sizes of developed world countries to fall. The post war baby boom generation is now beginning to hit it's peak. 

barnstar2077

I plan on fully retiring by 55.  Someone younger than me will take over my job and pay taxes, and I will spend money in cafes and on days out etc which will help out the economy.

Personally I think the biggest threat to retiring early these days is house prices and rents.  Rents are so high that people just can't save the excruciating amount needed to buy their own home.  I bought my house on my own about 18 years ago.  There is no way I could do it now.  The government introduced help to buy and LISAs, but all they do is keep house prices high.  If people couldn't afford houses they would be cheaper, but the government comes along and props people up and so house prices just keep going up.  There are not many people who need £800+ a month to pay their rent that can retire early.

[Deleted User]

green_man said:

It is an interesting question.

I retired at 47 (now 54) I was a higher rate tax payer and if I was still working I would have continued to be so. Since retiring I have been a non (income based)tax payer.  

So is the gov drawing in less tax due to my retirement? I don’t think so.  Basically someone else is doing my job, someone will have moved up into my role, this allows the usual job progression you get in a large company and ultimately enables them to take on more graduate level starters, without these opportunities it’s this age group than can struggle to establish their careers and become a burden on the state.

So overall I don’t think retiring early does  reduce tax take.  The only time it would be a big issue is if we have near 100% employment.

People are employed by businesses for a reason and its not so they get paid lots.  Employment is not a zero sum game. If trained and experienced people in their prime leave employment, it cuts the overall output.  And yes, it does reduce tax intake. 

Amateurretiree

iamnotasoldier said:

Connected straw poll : On those have retired early, or planning to do so, how many are planning to totally give up paid employment ? How many still planning to work part time or part of the gig economy ?

I retired 3 and a half years ago at 55 from Nursing, DH retired 2 years ago at 60 from factory work. We have both totally given up paid employment, and taken up unpaid employment , our new boss is a 2 yr old tyrant!

We are lucky I know, but we are loving our new life with just the right amount of busy ness.
Everyone I know is suprised at how much I enjoy retirement, I was always career focused and ended in a senior position, but for me personally it is the best move I ever made.

My son and his partner are in their late 30s, and are nowhere near the position we were in at their age, they live in a small house and have modest incomes, we are lucky enough to be able to help them financially when they need it. I suspect that is quite common amongst people our age.

Mickey666

green_man said:

It is an interesting question.

I retired at 47 (now 54) I was a higher rate tax payer and if I was still working I would have continued to be so. Since retiring I have been a non (income based)tax payer.  

So is the gov drawing in less tax due to my retirement? I don’t think so.  Basically someone else is doing my job, someone will have moved up into my role, this allows the usual job progression you get in a large company and ultimately enables them to take on more graduate level starters, without these opportunities it’s this age group than can struggle to establish their careers and become a burden on the state.

So overall I don’t think retiring early does  reduce tax take.  The only time it would be a big issue is if we have near 100% employment.

Agreed.  Well done on 47 btw, I only managed 49   But you're absolutely right about the job still existing (unless you were genuinely made redundant) and it was the same for me, so that job is providing the taxman with tax and NI.  In fact, the taxman is presumably even better off because as well as my old job still contributing to the taxman's coffers, so am I because I'm still economically active and spend my pension money as well as other savings and investments, all of which contributes to the economy.

So I can't really see how early retirement can be detrimental to the economy unless there is a labour shortage.

And no, I don't have any other part-time employment, nor have I ever wanted any.  I'm now far too busy pursuing all my other interests.  Indeed, I sometimes wonder how I ever found time to go to work at all! (the answer, of course, is by neglecting some of my other interests).