Fears have been raised for the retirement prospects of hundreds of thousands of older UK workers following the release of fresh data showing a dip in the employment rate of 50 to 64-year-olds, reversing a 20-year upward trend.

Figures from the Department for Work and Pensions (DWP) also suggest that while home working may help some older employees stay in the labour market, this is not an option for everyone. Those who fail to make the switch tend to have poorer health, lesser qualifications and live in deprived areas, indicating that home working could be entrenching existing inequalities.

The effects of the Covid pandemic are all but certain to be the reason for the fall in employment among over-50s, where the rate of those in work dropped to 71.2 per cent during the three months to June, down from 72.1% a year earlier.

Self-employment levels among older workers also declined, falling from 18.5% in 2020 to 17.1% in 2021. The DWP said it was too early to determine whether the changes were “short-term fluctuations or the beginning of a longer-term trend”.

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Though the decrease in employment was not deemed “statistically significant”, studies have repeatedly shown that once unemployed, workers in their 50s and 60s are far more likely to fall into long-term unemployment than their younger counterparts. This has been attributed to a number of factors ranging from age discrimination in the recruitment process to a lack of tailored retraining programmes to support this demographic.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the dip was hopefully a “short-term blip” rather than the beginning of a trend for people in these age groups being forced into an early retirement.

“Working up to, and even beyond the age of 65 is a necessity for many people if they want to enjoy a comfortable retirement,” she said. “We are living longer and will likely have to work longer as a result – very few people can afford to retire at the age of 50 and the age at which people can access their state pension is increasing.

“Early exit from the labour market can have a huge impact on people’s financial resilience as they miss out on what is for many people a sweet spot where their earnings and disposable income are high and they can afford to make real inroads into their retirement planning.”

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Being sick, injured or disabled continues to be the main reason why people aged between 50 and 64 years are economically inactive in the labour market, with 36.9% or 1.3 million people citing this as the reason for not seeking employment. This is followed closely by those who have formally retired – 35.1%, or 1.2 million people.

However, more than 790,000 in this age bracket are actively seeking work, or are inactive but would like to work. That is down from 810,000 in 2020, suggesting that many have become discouraged to the point of giving up the job hunt.

In the period from April to June, there were 471,000 people aged 50 to 64 years who were economically inactive but were willing or would like to work. Of these, 222,000 were male and 249,000 were female.

A little more than half said they were not looking for work because of illness, injury or disability. “Looking after home or family” was given as a reason by 14.9% of respondents, up from 14.4% a year earlier.

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The figures from the DWP, which are based on data from the Office for National Statistics, are now in their sixth year of publication and are intended to detail the trends in this segment of the workforce, which is growing in line with the UK’s ageing population.

Ms Morrissey at Hargreaves Lansdown noted that many opt to work into retirement as a way of generating much-needed additional income, while others work longer through choice.

“We have seen the number of over 65s in work rise from 424,000 in 1996 to around 1.28 million in 2021 – it is vital that the employment prospects of older workers are not damaged long-term, not least because of recent government announcements that earned income from those over state pension age will be subject to the 1.25% Health and Social Care levy,” she added.