Employers
are split on the increasing use of flexible retirement, but more flexibility
should help defuse the age time bomb, argues Stephen Overell
Just as predicted, employers’ organisations are heavily divided on whether
they want to see a shake-up of retirement policy.
The CBI favours the status quo and has said that while there is a case for
more flexibility around retirement, it is concerned about phasing-out
contractual retirement age altogether, as it would mean great upheaval for
employers and unnecessarily complicate succession planning. The Engineering
Employers’ Federation takes a similar view.
The Institute of Directors is slightly less anti-change. Ruth Lea, its head
of policy, says that while there are good arguments for people working longer,
employers would need to be sure they could dismiss on grounds of ability
without the risk of being taken to a tribunal.
Yet other employers’ bodies see it differently. The Birmingham Chamber of
Commerce, for instance, is in favour of an exemption that allows employers to
negotiate around the mandatory retirement age with individual employees. Even
though the chamber admits that it may lead to tribunal claims from people who
feel they have been denied the same opportunities as their colleagues.
"If a UK statutory exemption was introduced, employers who chose to
implement a mandatory age would do so at their own risk," says the
chamber’s policy director Louise Beard.
And then there is the CIPD, which is taking an unusually radical line. It
says that age limits, age bands and age-based criteria generally are not
objective methods of testing suitability for employment.
"The HR community doesn’t believe in retirement age," says its
employee relations adviser Mike Emmott.
The CIPD acknowledges the arguments in favour of the status quo – after all,
there’s not exactly a huge groundswell of employees begging to be allowed to
work beyond 70 – but it goes on to say: "It is difficult to know on what
objective grounds any particular retirement age could be defended as
non-discriminatory."
Employees should have the greatest freedom of choice, the institute argues,
balanced, inevitably, by employers’ requirements. In place of a fixed
retirement age, employers would need "other means of assessing an
individual employee’s continuing suitability and preferences" –
performance management, presumably.
"Abolition of fixed retirement ages will be likely to further undermine
the idea of ‘retirement’ and accelerate the existing trend for pension arrange-
ments to become increasingly difficult to distinguish from other long-term
investment schemes."1
The Work Foundation is equally determined that retirement age should go. The
key problem, it believes, is perception, not the law.
"With the ageing population, maintaining the status quo is not
realistic," claims policy specialist Yvonne Bennion. "Retirement age
sends a signal of what is acceptable, when we need to be addressing the mindset
of expectations we have of older people."
The Government, which must introduce age discrimination legislation by 2006,
evidently has an extremely complicated decision on its hands.
The Employers Forum on Age has suggested that 75 per cent of employers are
keen to see a more flexible system that allows employees to retire at any time
during a 10-year period.2 Some employers, such as BT and Sainsbury’s, already
have flexible retirement – the supermarket’s oldest employee is 95 – but in the
absence of a change in the law, the problem campaigners face is convincing more
employers of the merits of flexibility when the age at which the state pension
can be drawn gives such a powerful indication of ‘normal’ working life.
Just how keen the Government is on rights for older workers, may in the end
be a reflection not of concern for equality, but of anxiety about demographic
change. It will not need much persuading that workforce participation among the
over-50s is too low. Employment of people aged between 50 and retirement age
(65 for men, 60 for women) is running at about 69 per cent.3
Over the past few years, this figure has been edging up, yet the longer-term
rate of decline among men is stark. In 1979, 84 per cent of men aged 50 and
older were in work; the figure is now about 67 per cent.4
The EFA has calculated that inactivity among the over-50s currently costs
between £16 billion and £26 billion a year. The ratio between working and not
working is set to worsen, as the Government’s Performance and Innovation Unit
has noted, with less tax for the exchequer and a greater burden on those in
work.5
Greater flexibility around retirement could be seen as a means of increasing
the participation of the over-50s in the labour force. If so, reform of
occupational pensions will have to be tackled. Inland Revenue rules prevent
salary and pension being drawn at the same time, thus making a gradual
withdrawal from full-time work commitments – going part-time or taking a role
with a lower level of responsibility – difficult for many because a decline in
income cannot be supplemented by pension. In 1998, the Inland Revenue
recognised this rule was outdated, but reform was rejected because of problems
with the interaction of social security laws. If the true aim is flexibility,
this rule will have to go.
If the Government is convinced that drastic measures are called for, it
might be interested in the experience in Spain, where a new flexible retirement
system came into force at the start of the year. Aiming to extend working life
beyond the legal retirement age of 65, and the real average retirement age of
62 and six months, the system uses incentives to encourage age diversity. For
employers, a reduction in social security contributions for workers aged 60-65
and no contributions at all after 65 is the carrot. In exchange, workers obtain
a 2 per cent annual increase in the earnings base used to calculate their
retirement pension, plus an extension of the right to early retirement,
provided they have contributed for 35 years. Workers older than 65 are exempt
from social security contributions.6
Whichever system the Government opts for in the UK, the simplest point about
retirement is invariably the most powerful: people choose their occupations; it
seems unjustifiable they should not be able to choose when to end them.
1 Response to Equality and Diversity Consultation, CIPD, 2002
2 Press release, Employers Forum on Age, April 2002
3 Labour Force Survey, Office for National Statistics, 2002
4 TUC press release, February 2001
5 Winning the Generation Game, PIU, Cabinet Office, 2000
6 Details of European comparative data from European Industrial Relations
Observatory
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