As the baby-boomers of the swinging 60s edge towards pension age, often without the desire or the finances to retire, employers need to prepare for the workforce challenges this may create, actuary Douglas Anderson says.
By the 2020s, the UK will see an increase in 60-somethings who want to continue working – introducing both challenges and opportunities for employers. Specifically, the ban on contractual retirement ages creates both a threat to competitiveness and an opportunity to harness the experience and wisdom of older workers.
To tackle these head on, employers need to begin early in challenging some of the misconceptions and changing any unhealthy habits of their employees.
Where will all the sexagenarian workers come from?
The volume of sexagenarians is set to significantly increase, fuelled by the baby-boomers of the 1960s, more of whom are likely to work for longer than previously anticipated. The latest population projections reveal that the ranks of sexagenarians will grow from 7 million to 8.5 million by 2030, a rise of almost a quarter.
On the one hand, this is good news – it means that significantly fewer premature deaths have occurred, thanks to advances in healthcare. On the other hand, this boom will result in a greater demand for work and a growing reluctance among older workers to retire voluntarily. The changing environment of workplace pensions and the shift towards individual responsibility for pension saving means that growing numbers in their 50s have not saved sufficiently to enable retirement. We have also seen workplace pension schemes raise retirement ages to cope with an improving life expectancy.
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The Institute for Economic Affairs recently highlighted that around four people in 10 aged between 55 and were economically inactive in the UK, in its January 2014 report Income from work: the fourth pillar of income provision in old age.
But with more workers set to delay retirement, we could see the number of people economically inactive improve to levels similar to that of Switzerland (three in 10) by 2030. This, combined with the growth in the sexagenarian population, means the number of 60-year-olds working could increase by one to two million by 2030.
An enterprise-wide risk
The challenge is how to change workers’ behaviours far enough in advance to turn the rise of the sexagenarian worker into an opportunity rather than a threat to productivity. The end of the default retirement age means businesses need to influence their employees’ actions rather than direct them. The preparations ought to start at least 10 years, and ideally 20 years, ahead.
Older workers will need personalised support in making changes to their working life. A less physically demanding role, or possibly retraining or redeployment, can help in extending an employee’s working lifetime. A more flexible retirement option from the managers of a pension scheme is another possibility.
The rise of the sexagenarian worker cannot be addressed by human resources professionals alone. It has to be recognised as an emerging enterprise-wide risk and acted on now.
Top five tips to prepare for longer careers
- Diversify investment. Employers can have a key role in helping employees plan for later life. This goes beyond advice about investing spare cash; it is also about investing in skills and physical fitness. Lifestyle habits can be tough to change, but they deliver high rewards. More physical activity, from walking or cycling to work, and investing in keeping skills up to date could reasonably extend an employee’s career by a decade and are much cheaper than saving for 10 years’ additional pension.
- Take early action. Just as early saving gains the long-term benefit of extra interest, so looking after your health will slow the ageing of body and mind, and improve a sense of well-being. The sooner people start the better. Given the changing work landscape, there is scope for a new breed of super coaches offering joined-up financial, lifestyle and up-skilling advice, which employers can help to provide.
- Beware of myths. Flawed research suggesting that early retirement leads to longer life pervades the internet and saps the morale of older workers. There is mounting evidence of the positive benefits of work, including emerging research from Club Vita, analysts of longevity data, suggesting that delaying retirement enhances length of life. Club Vita is collaborating with occupational health experts from Glasgow University and many leading employers to help smooth the transition towards longer working lifetimes, in a research programme supported by the Medical Research Council.
- Review final-salary pension incentives. Delaying retirement was counter-cultural when many of today’s final-salary pension schemes were designed. Although such schemes have largely closed in the private sector, many older workers remain in them. Old-fashioned late retirement rules tend to discourage late retirement, leading to a loss of valuable skills. Late retirement enhancements to pensions can often be improved in a manner that encourages continued working and saves the employer money – a rare mutual benefit for both employee and employer.
- Develop a sexagenarian strategy. Employers need a forward-looking strategy that joins up finance, human resources, pension funds and line managers in the employer’s operations to address the enterprise-wide risk and seize the opportunity.