Planning ahead for an ageing workforce

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• Taking a long-term view of the workforce is essential.
• Reward can play a key role in recruitment, retention and staff development strategies.
• With people living longer, pensions will have to stretch further, so many people will consider staying in work past 65 to fund their later years.
• Employers should have regular career conversations with employees.
• Any changes to benefits provision must be clearly communicated.

Case study: B&Q fits in older workers

DIY retailer B&Q sees that an age-diverse workforce brings a wealth of skills and experience. It has operated without a default retirement age for over 15 years, and aims to provide ageneutral benefits for its 32,000 employees.

This means ensuring the perks for staff across its 300 UK branches, such as voluntary benefits, apply to all and are not biased by geography, age or gender. Paul Manzi, reward manager, says: “We try to be non-age specific.”

B&Q actively recruits from all age groups and, with 28% of its workforce over the age of 50, it has many employees who are semiretired.

B&Q’s oldest employee is 96 and works on the checkouts.

The firm recognises that an ageing population comes with some physical restrictions, for example injuries, bad backs and people becoming more frail, so it offers adjustments to utilise these people as well as it can. “With a more
diverse workforce comes years of experience,” says Manzi. “Whatever the age or skillset, we accommodate those people.”

Case study: Marks and Spencer sells flexible approach

At Marks and Spencer, a workforce with a broad age demographic means ensuring the benefits that it offers are relevant to all generations.

The retail firm has operated without a default retirement age since 2001.

In 2006, it introduced flexible retirement, offering staff the opportunity to retire and take their pension while working reduced hours. Deborah Warman, head of employee relations and reward, says: “Since we introduced this, we have seen about 85% of the people who retired in 2009/2010 take flexible retirement. It has been really popular.”

Since 2006, there has been an increase in older workers at the firm. It had about 800 employees aged over 65 in 2006 and now has around 1,650. Marks and Spencer also ensures its wellbeing strategy contains information relevant to all age groups. For example, its wellbeing site contains a section offering advice on the menopause, as well as details on voluntary benefits such as discounted gym membership.

“We try to target things that suit everyone through our wellbeing approach,” says Warman.

As the working population gets older, employers must plot a new direction for reward strategies, says Tynan Barton

The UK workforce is in a state of flux. With no default retirement age (DRA) from October 2011 and an older working population developing, employers must take a longer-term view to ensure reward strategies meet employees’ needs and plans, and those of the business.

Workforce demographics are inevitably going to change. Before April 2011, when the phasing out of the DRA began, employers that operated an upper working age limit would have found it much simpler to address the issue of a person working beyond 65, simply because there were fewer of them. Looking ahead, an older workforce will soon become the norm.

The need to determine where key workers will come from, coupled with changing age demographics, means many organisations are taking a more strategic look at workforce planning and the role reward plays in attracting the right employees. Reward and benefits plans should also motivate current staff to go the extra mile for the business, says Carole Hathaway, Europe, Middle East and Africa (EMEA) practice leader, reward at Towers Watson. “Reward has an important part to play in long-term planning to help the organisation recruit, retain, motivate and engage,” she explains.

With some employers already operating with no upper age limit (before it becomes compulsory from October this year), many need to address workforce planning issues now to enable the business to remain competitive and be seen as an employer of choice.

Recruitment planning

Employers’ long-term succession and recruitment planning will be complicated by the fact that employees will be retiring at undetermined ages. Peter Reilly, director, HR research and consultancy at the Institute for Employment Studies, says: “Employers cannot make assumptions about scores of people all leaving at a precise age, which suggests they have to have a much more individualised approach.”

People working longer will inevitably create holes in an organisation’s succession plans. Clearly, the more people there are in jobs, the fewer job opportunities there will be. “More organisations are focusing around succession planning now, not just for key leaders, but key roles as well,” says Hathaway.

As for the younger generations, who already face an uncertain future with an unstable job market, long-term workforce planning requires employers to consider what their talent pipeline looks like now and plan what it will need in future to ensure the business remains successful and competitive.

Although employees may choose to work longer, it is still vital to attract and retain young talent. Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals, says a young person may be put off joining an organisation that has few chances for career progression. “It’s the promotional prospects. It could be a disincentive if somebody has applied for two jobs and one has little chance of promotion.”

Hathaway says employers must ensure their reward is attractive to the talent it needs both now and in the future, while considering the generational differences. “The younger generation wants to have the right opportunities to learn the right skills and make them employable in the longer term, but they are also focused on cash.

“There is a trend to provide flexible benefits so there is a certain amount of choice for people. Maybe private medical insurance is not a big turn-on for people in their twenties, but if they could convert that benefit into cash, it may be very attractive.”

Career conversations

To engage employees and get discretionary effort from them, employers should have regular career conversations with all staff. The IES’s Reilly recommends this is not left until staff approach the traditional retirement age, so an employer can get an idea of a person’s long-term plans and feed back organisational perceptions of them.

“What you are trying to do is get a match between individual and organisational views on their career, and manage out those people where there is a clear mismatch between expectations on the organisation’s and the individual’s side,” he says. “That sort of thing would be useful to think about, and intensifies as people go into their mid-fifties and beyond, because it is only that sort of intelligence that would enable organisations to plan their resources for the future.”

But it is not only the different generations that employers need to think about when it comes to workforce planning. Many organisations also look at different job roles. Chris Charman, director, rewards at Towers Watson, says: “We have seen a rise in focus on segmented reward. This plays into looking at particular types of role and thinking about the reward proposition differently for those different groups.”

For example, if an employer has a particular group of roles that are critical to its long-term success, it might pay those people at above the market rate.

Just as many employees plan to stay in work into their late sixties and seventies, so many employers are welcoming the opportunity to retain key talent. This will have a huge impact on pensions provision.

Reilly explains: “Defined benefit (DB) schemes at least meant an employee could have a good personal plan and make a reasonable stab at knowing what their retirement income would be, but that is not very easily the case with defined contribution (DC) schemes. People may feel under pressure to work longer in order to have more income in their later years, and to maximise their pension as much as they possibly can.”

Flexible retirement

One option is to give staff the opportunity to take flexible retirement, where an individual continues working, perhaps on reduced hours, while also drawing their pension. Rupert Hutton, reward director at PricewaterhouseCoopers, says: “Unless retirement is attractive enough, employees are going to have to work longer. They may not welcome this, but they may welcome the flexibility to be able to work longer and be able to support themselves.”

Although continuing benefits past 65 for staff in a DC pension plan will be relatively straightforward, issues can arise if someone is invested in a lifestyling fund, where as they approach retirement, they move their funds from risky assets into much safer ones. Jane Beverley, head of research at Punter Southall, says: “Most of these policies are written on the assumption most people will go at age 65. That may need to be reviewed and people will need to know it is happening. They will not want all their assets to be in completely risk-free funds at age 65 if they intend to continue working until age 75. There needs to be some communication around that.”

Employees in DB schemes face a particular problem over the benefits they have already built up if an employer gives them late retirement increases, says Beverley. “Because most people did not work beyond age 65, a lot of schemes have never really reviewed their late retirement increases, which could be quite generous,” she says. “If an employer suddenly has 20 or 30 people taking late retirement and is giving them generous increases, that is potentially additional costs to the scheme.”

Also, if an employer offers death benefits through its pension scheme, this raises the question of whether it can stop providing them at age 65. The government’s exception, issued when the removal of the DRA was confirmed, stated there would be no unintended consequences for employers that voluntarily offer group risk insured benefits such as income protection, life assurance, sickness and accident insurance, including private medical cover.

Death benefit

Paul Avis, sales and marketing director at Canada Life, says: “Pension schemes have an exemption, but self-insured schemes do not, so if the death benefit is covered in the pension, it is OK.”

When considering long-term plans for their workforce, employers need to ensure group risk benefits comply with legislation, says Avis. “People need to review their group life and critical illness products to make sure they comply with the requirement for age 65 or state pension age, whichever is greater.”

As workforces gradually age, employers must decide how to manage certain issues, such as ‘good’ and ‘bad’ leavers of share schemes. Tim Randles, associate at Penningtons, says: “Retirement is usually a good leaver; someone who resigns is usually a bad leaver and forfeits some or all of their entitlements. Abolishing the DRA means most people will need to resign to bring their employment to an end, or it may be terminated on grounds of capability.”

Looking at the role of reward in the long-term management of staff, Towers Watson’s Charman says: “Employers need to remain flexible to align their reward package to get the most out of a valuable resource. To really engage workers, they should create integrated talent and reward frameworks that are really visible to people and are much more employee-centric. Too many employers are hiding their light under a bushel in terms of what they do for employees, by not going the extra mile to communicate.”

Planning for a different age

Employers are cautious about how the removal of the default retirement age (DRA) will affect their provision of group risk benefits. The EmployeeBenefits/Friends Life group risk research †2011, published in July, found 24% will await advice from their benefits consultant before taking action, but 20% plan to leave their cover as it is.

With an ageing workforce, a person’s ability to do a job is of utmost importance to their continuing employment. Employers can assist by making reasonable adjustments to the workplace or the role. However, the Chartered Institute of Personnel and Development’s Employee outlook: focus on managing an ageing workforce found 76% of employers have made no adjustments to help people carry on working, while the most common adjustments are access to occupational health services (7%) and offering a reduction in hours (7%).

Equally as important as capability is the health of an ageing workforce. The Employee Benefits/Pruhealth healthcare research 2011, published in June, found that in view of the removal of the DRA, 30% of employers will need to review their health and wellbeing strategies to ensure older workers remain healthy, while 10% will need to increase investment in these strategies for older staff.

Many employees are planning to work past 65, as the CIPD’s Employee outlook found. Just under half (49%) plan to retire when they reach 65 to 70 and 6% between 71 and 75, while 10% do not plan to retire formally at all.

Read more on the impact of the end of the DRA on benefits