Sue Jones looks at the implications of a Cabinet Office investigation

If early retirement looks attractive at the end of an exhausting week, think again. Some can afford to reach for the golf clubs and Saga brochures, but many who leave a job in their 50s never work again. For them, early retirement means declining health, poverty and social exclusion.

Nearly three-quarters of early retirees receive some state benefits. For almost half of them it makes up more than half of their household income.

And people out of work or on low incomes are more likely to suffer from poor self-esteem, depression, illness and to get divorced, according to the Performance and Innovation Unit (PIU), a research group within the Cabinet Office.

One in three people between the age of 50 and state retirement age is “economically inactive”, a total of 2.8 million. And the outlook for many of them is grim, says the PIU. They did not choose to be in this situation and have little prospect of escape.

The stereotype of the early retiree with time and resources for holidays, hobbies and grandchildren fits only a small minority says a PIU report “Winning the generation game”. Only one in eight early leavers (12 per cent) falls into the top fifth of incomes. In reality, most will have been under pressure to leave. Although their retirement was probably classed as voluntary, the alternative may have been redundancy or a major change to their job. They are all less well off than if they had continued in work, and for some their occupational pension is too small. Their expectations have changed, but they have decided to make the best of it.

Hardest hit are those who, often in skilled manual or clerical jobs, are forced into redundancy or early retirement but have little or no occupational pension, says the PIU. They want another job, but after doing the same work for years their skills are out of date.

Their income falls substantially and they become at least partially dependent on benefits. Those not working because they are caring for others are predominantly women, often looking after their parents or grandchildren. Their financial situation depends almost entirely on their partner’s income.

Low-paid workers who have been made redundant simply continue in poverty.

They rapidly become dependent on benefits and have no other resources until they receive their state pension.

There is also a connection between early retirement and ill health. Around 1.3m of the economically inactive between 50 and state retirement age receive sickness or incapacity benefit. Most of these did not retire early for medical reasons but have become ill since.

For many early retirees the only way out of poverty is to work again. But in practice few do. Some people on benefits would like part-time work. But although the rules have recently changed to make the transition easier, they are afraid to try in case they lose any future entitlement to benefit.

And, given the difficulties older people face in the labour market, the Employment Service tends to invest more time and effort in helping younger job seekers gain the necessary skills. Although only 10 per cent of early leavers are actively looking for work at any one time, most have tried but failed.

Ageism can be difficult to detect and impossible to quantify, but older people are often seen as inflexible, harder to retrain and more likely to fall sick. Some young managers may feel undermined by older people on their teams.

Early retirement boomed in the economic crisis of the Eighties as companies shed staff to raise productivity. More recently, pension schemes that pay higher rates the longer you stay in work are encouraging employers to get rid of people in their mid or even early fifties.

Individual organisations have made short-term cost savings from early retirement, but the PIU believes it is happening to an extent that is damaging the economy.

Apart from the damage to individuals, the PIU has calculated that the country is losing pound;16 billion a year, while benefits and lost taxes are costing the public purse pound;3-5bn a year.

Most saving for old age is done in our 50s, so people who become poor then are likely to remain so for the rest of their lives. And as the proportion of the population over 50 increases, the problem can only get worse, the PIU warns.