Older people have been severely affected by the coronavirus pandemic in terms of their health and mortality, but less focus has been given to the financial impact on older adults. Using new data from the COVID-19 questionnaire of the English Longitudinal Study of Ageing (ELSA), we investigate how adults in their 50s and older have been affected financially by the pandemic.
We find that respondents who were in paid work immediately prior to the pandemic were more likely to see a negative impact on their financial situation than those in retirement. Almost a third of those in work report that their financial situation is now worse than before the pandemic, and over a third report that they have faced a fall in their household income.
While many older individuals have financial wealth that they might be able to draw on to help weather income shocks, this is not true of all. This is made clear by respondents’ reports of how they have adjusted to lower incomes: some have drawn on pension saving, borrowed from banks, or borrowed from friends and family. Overall, those who report being adversely affected by the COVID-19 crisis are disproportionately those who were in a less secure position financially before the crisis, heightening concerns about the impact of the crisis on financial inequalities. Retirees are more likely to hold risky assets (which are exposed to market fluctuations) and the average proportion of total financial wealth held in risky assets is higher for retirees than those in work. However, many older workers are also exposed to falls in asset prices through defined contribution (DC) pensions.
Going forwards, there is a risk that the financial shock of this crisis will have long-term implications – if, for example, older workers who are made unemployed struggle to return to paid work and retire earlier than planned, if individuals draw on their pensions earlier than they planned or before fund values recover, or if individuals are unable to rebuild their pension funds in the wake of poor investment performance. Policymakers will need to ensure that older individuals are supported in any employment adjustments they make, and well informed in the decisions they make regarding their pensions.
- Nearly one in five people aged 52 and over reported that their overall financial situation was worse in June–July than before the coronavirus outbreak. Older workers have been more negatively affected than retirees: 29% of those in work immediately before the crisis reported that their financial situation was now worse, compared with 13% of retirees.
- Those reporting being adversely affected by the crisis are disproportionately those who were ‘just about getting by’ or ‘struggling financially’ before the crisis, heightening concerns about the impact of the crisis on financial inequalities.
- Among older workers, 37% reported that their household income was now lower than in February (compared with 7% of retirees). Not all older individuals have wealth to help them weather income shocks. Among those whose income had fallen, 23% had household net financial wealth of less than £500 per person.
- In terms of how older people adjusted to their income falls, most saw their spending reduced anyway due to lockdown restrictions. A significant minority reported other adjustments: one-third chose to reduce spending, 20% reduced their savings, 20% drew on savings, 5% drew on pension savings, 3% borrowed from a bank and 3% borrowed from family and friends. These other adjustments were more common among those with lower levels of net financial wealth.
- The fluctuations in stock markets have hit those with wealth held in risky assets (41% of retirees and 34% of older workers) and DC pensions (54% of older workers). Individual savings have become more important in building up funds for retirement, and shocks as the current crisis illustrate how risky this exposure can be for a significant and growing minority of older people.