Extending working lives

1. Extending working lives James Banks and Gemma Tetlow Institute for Fiscal Studies and University College London

2. Background • Rapidly growing aged population in the UK • Potentially increases the pressure on public resources • But economic, rather than old-age, dependency ratio is what matters • Individuals working for longer will reduce the economic dependency ratio, so has become an important policy issue • Determinants of work at older ages are complex • Current participation rates still below levels seen in late 1960s • Labour demand • Labour supply • Pensions incentives (state and private) • Health and work disability • Family circumstances

3. What can three waves of ELSA tell us? • Changes in employment rates between 2002 and 2006 • How have initial characteristics been correlated with employment outcomes? • Work and disability • Self-reported status and vignettes • What can we expect in the future? • Correlation of expectations with outcomes • Evidence on knowledge of female SPA changes

4. Employment rates below SPA have increased Men 50–54 Men 55–59 Men 60–64 Women 50–54 Women 55–59

5. Transitions into and out of work • A number of factors are associated with exiting full-time work, retiring gradually and also returning to work at older ages • Family circumstances • Much more likely to remain in work / return to work if partner also working • Health • Onset of major health conditions associated with greater likely of leaving full-time work and of not retiring gradually • Financial incentives • For men at least, membership of defined benefit pension scheme associated with greater likelihood of leaving work • Previous work experience • Less likely to return to work if have been out of work for a long time • Less likely to phase retirement if have been in same job for a long time • There is still more to be done to understand the complex relationship between all these factors

6. Work and disability • Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups • Evidence from wave 2 (Emmerson and Tetlow, 2006) • Does this entirely reflect differences in reporting styles (in other words, that individuals have different response scales)? • Evidence from vignettes shows that differences in response scales play a part, but do not explain all of the differences in self-reports

7. Perceptions of work disability by wealth quintile Geoffrey suffers from back pain that causes stiffness in his back especially at work, but it is relieved with low doses of medication. He does not have any pains other than this general discomfort. How much is Geoffrey limited in the kind or amount of work he could do? Quintile of total non-pension wealth

8. Work and disability • Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups • Evidence from vignettes suggests differences in response scales play a part, but do not explain all of the differences in self-reports • Work disability is not a permanent state of affairs • 28.9% of those with a work disability no longer reported one 2 years later • 15.7% of those without had developed one • Onset of work disability: the differences between workers and non-workers are greater than the differences across age groups • Reflects the degree of heterogeneity in the population, of which ‘work’ is an indicator regardless of age • Onset amongst workers more likely for men, part-time workers and those with lowest wealth

9. Probability of work disability onset varies more by work status than by age Percentage who experience the onset of a work disability between waves 2 and 3

10. Work and disability • Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups • Evidence from vignettes suggests differences in response scales play a part, but do not explain all of the differences in self-reports • Work disability is not a permanent state of affairs • Onset of work disability: the differences between workers and non-workers are greater than the differences across age groups • ‘Recovery’ from work disability is quite common • ‘recovery’ most likely for those who were working, wealthiest, had no pre-existing major health conditions • But, of those who were out of work, only very few return to work when they ‘recover’

11. Most non-workers who ‘recover’ from a work disability do not return to work Percentage not reporting a work disability in wave 3, of those work disabled and not working in wave 2

12. What can we expect in the future? • Respondents to wave 3 reported higher expectations of working in the future than respondents to wave 1

13. Expectations of being in work at older ages have increased Expectations of being in paid work after age X X = 55 60 65

14. What can we expect in the future? • Respondents to wave 3 reported higher expectations of working in the future than respondents to wave 1 • Will this translate into higher employment rates in the future? • Future work expectations reported in wave 1 were strongly correlated with subsequent outcomes • So the higher average reported expectations in wave 3 may well translate into higher employment rates in years to come

15. Expectations of future working from wave 1 were correlated with subsequent outcomes Percentage in work in wave 3, by reported work expectations at wave 1

16. What can we expect in the future? • Respondents to wave 3 reported higher expectations of working in the future than respondents to wave 1 • Will this translate into higher employment rates in the future? • Increasing the female SPA may also lead to higher employment rates

17. Men Women Future changes to State Pension Age in UK ELSA Cohorts

18. Men Women Future changes to State Pension Age in UK ELSA Cohorts 2010-2020 (announced 1995)

19. Men Women Future changes to State Pension Age in UK 2034-2036 announced 2006 ELSA Cohorts 2044-2046 announced 2006 2024-2026 announced 2006

20. What can we expect in the future? • Respondents to wave 3 reported higher expectations of working in the future than respondents to wave 1 • Will this translate into higher employment rates in the future? • Increasing the female SPA may also lead to higher employment rates • Changing social norms • Increasing financial incentives to remain in work • Effect on partners’ participation decisions • But… knowledge of the changes amongst those who will be affected is low

21. Knowledge of changes to female SPA is low… Age at which women think they will reach State Pension Age Actual SPA: 60 Between 60 and 65 65

22. …but it is somewhat higher amongst workers Age at which women think they will reach State Pension Age Actual SPA: 60 Between 60 and 65 65

23. Conclusions • Evidence on the dynamic patterns of employment, work disability and other factors • Systematic patterns of movement out of full-time work • These seem to be anticipated by individuals • Socio-economic differences in the degree to which individuals can and do use part-time working to ease the transition out of full-time work • Strong relationship between wealth, employment and (the permanence of) self-reported work disability, which is not primarily driven by differences in reporting style • What will happen in the future? • Expectations strongly correlated with subsequent outcomes • How will women respond to the change in State Pension Age? Will their current levels of knowledge affect how they respond?

24. Extending working lives James Banks and Gemma Tetlow Institute for Fiscal Studies and University College London