If you read nothing else, read this . . .
- 44% of people aged 65 and over intend to continue working until they are at least 70, while 21% say they will never retire.
As employees get older, the cost and ease of providing health benefits can change and employers may have to look at alternatives, says Debbie Lovewell
Some of the UK's best-known musicians could teach employers a thing or two about older workers. Paul McCartney and all members of the Rolling Stones may be just shy of their 70th birthdays, but show no sign of slowing down and giving up work in favour of retirement.
These high-profile examples of working past the traditional retirement age are not the only ones. According to research by ICM and Heartwood Wealth Management, published in August, 44% of people aged 65 and over intend to work until they are at least 70, and 21% said they would never retire.
Also, the coalition government announced in its emergency Budget in June that it intends to phase out the default retirement age - which enables employers to force staff to retire at 65 - from April 2011.
But if employees are to remain at work indefinitely, their employers will inevitably want to ensure they are fit and well enough to do so, while still performing at the required standard. Under the Employment Equality (Age) Regulations 2006, employers must ensure they do not treat older employees any differently from younger staff - and that includes the benefits they receive.
Avoid discrimination claims
Although employers must provide all staff with the same benefits in order to avoid discrimination claims, perks can differ slightly in their make-up. For example, what is offered under a health screening benefit may differ as an employee ages and becomes at greater risk of developing certain conditions. Screening for certain cancers, which are typically more prevalent among the older population, can be included in the benefit for staff above a certain age, say 55.
Claire Ascott, head of client analysis at Enrich, says: "A lot of employers recognise the benefit of offering that type of screening from an early intervention point of view."
Catching such conditions at any early stage can help to reduce the cost of claims on any healthcare benefits an organisation may provide for staff to use in these circumstances, such as private medical insurance (PMI). In the long term, this can help to control the cost of premiums.
Also, the earlier a serious illness is diagnosed, the more likely it is that the employee will make a full recovery and, ultimately, return to work more quickly.
The increasing cost of healthcare benefits as an employee ages is a significant challenge for employers, particularly around insurance benefits such as PMI, critical illness cover and group income protection. Michael Payne, general secretary of the Association of Medical Insurance Intermediaries (Amii), says: "The challenge is that as the percentage of the workforce above a certain age increases, so does the potential for claims."
Higher benefit-in-kind tax
As well as increasing costs for the employer where they fund PMI for staff, rising premiums also mean that employees will incur higher benefit-in-kind tax on the perk. In some instances, this could prompt younger staff to drop out of the scheme as it becomes less affordable, which pushes up the average age of employees covered, says Mike Blake, compliance director at PMI Health Group.
"My worry is there could be a reduction in benefits, either because it is going to get cost prohibitive, or due to worries about falling foul of discrimination legislation," he adds.
Steve Desborough, senior consultant at Towers Watson, says: "A healthy older worker could sit next to a 30-year-old who has a number of pre-existing conditions that are covered under the policy, but is paying less."
So employers should take steps to control the risk of rising premiums. One option is to provide measures designed to boost overall employee wellbeing across the workforce.
If employees take care of their health and wellbeing, it can have a significant impact on PMI premiums, says Tal Gilbert, head of research and marketing at PruHealth. "As you get older, the difference in cost between those who look after themselves and those who do not, increases."
Gilbert says there can be a cost difference of up to 70% for a policy between someone who exercises regularly and someone who does not. In younger age groups, there is not such a big discrepancy.
A health cash plan can also help staff to access everyday or more routine treatments, which may remove some of the burden from their PMI scheme.
Rising PMI premiums
But PMI is not the only benefit for which employers face rising premiums as their workforce ages. "The easiest to understand is life cover," says PMI's Blake. "Insurers have a clear idea of mortality risk. It will cost employers more because there is a greater risk to the scheme. That creates pain for organisations, but most would be willing to swallow that."
Cost is not the only challenge facing employers when providing health and wellbeing benefits to older workers. Some insurers that provide benefits such as life assurance, critical illness cover and group income protection, as well as PMI, will provide cover only up to a certain age. "Some insurers have an underwriting scheme where they will not underwrite a plan where more than one in 10 employees is aged over 65," says Amii's Payne.
Some group income protection providers set a default retirement age up to which the scheme will pay out. Others, meanwhile, have no upper age limits, which could have a significant impact on employers' costs.
So the increasing number of older employees in the workforce may prompt employers to review the design of the group income protection scheme they offer. "Insurers know the morbidity risk up to age 65," says PMI's Blake, "but they do not really have the data to know how to price it [post-65]. I think this will push employers into going for a limited-term policy."
Limited-term policies
Limited-term policies pay out for a pre-defined period, typically two, three or five years, so are more cost-efficient for employers. If these are provided for the entire workforce, not just older members, employers will not be in breach of age discrimination legislation.
But when it comes to PMI, the solution may not be so simple. If employers are unable to source cover for staff above a certain age, they may have to seek an alternative. Blake says: "Either the organisation has to stand the promise itself or negotiate the employee out of the arrangement."
The latter option is currently something of a grey area because it would put the employee on different terms and conditions to other workers. Whether this would fall foul of age discrimination legislation would be subject to a test law case.
But employers are not the only ones that may have to adapt the healthcare benefits they offer in response to an ageing workforce. If the workforce continues to age, insurers will also have to become more flexible in the products they offer, says Amii's Payne. This will particularly be the case if employers can show they are taking steps to improve the health of their workforce and reduce scheme risk.
Towers Watson's Desborough adds: "It will be interesting to see how the insurance market develops. Some insurers will be looking to input policies that will cater for workers post-65. This is going to be an evolving environment."
Exactly how an ageing workforce will impact on employers' health and wellbeing provision is yet to be seen, however. As Payne concludes: "It may be a case of suck it and see. There may not be many people who want to carry on working past 65."
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Views on older workers
- Just 14% of managers consider their organisation to be very well prepared to deal with issues caused by the increasing average age of their workforce.
Source: Managing an ageing workforce: How employers are adapting to an older labour market, The Chartered Institute of Personnel and Development and Chartered Management Institute (published September 2010)
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