Amid the scores of workers that either don’t want to retire and those that can’t afford to is a vast talent pool waiting to be tapped, says Debbie Lovewell
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Case Studies: The London and Quadrant Housing Trust, Wokingham District Council
Celebrities are notorious for constantly changing their minds. Just think of stars such as Barbra Streisand or Tina Turner who have announced their retirement from showbusiness with grand fanfare only to return for just one more show.
While us mere mortals don’t have the same luxury of yo-yoing in and out of retirement whenever the whim takes us, the last few years have seen retirement patterns begin to undergo a dramatic transformation. Rather than facing a choice between taking early retirement or remaining in work until age 65, employees are increasingly finding themselves able to set the agenda when it comes to retirement. According to employer-led initiative The Employers Forum on Age, by next year employees aged between 55 and 64 will outnumber those aged 16-24 for the first time. This is due to a declining birthrate and therefore an increasing shortage of younger employees in some sectors, which will ensure that experienced staff remain in demand.
Consequently, there are an increasing number of opportunities for staff to work past the traditional retirement age. Tony Chiva, head of education and training at the Pre-Retirement Association, explains: "It often depends on the attitudes of senior management. The single biggest driver for accepting an employee staying longer is going to be the business case and whether [a particular organisation] has a shortage of skills and labour. Otherwise it depends on the local situation and previous experience of older workers."
Employees that do continue working typically fall into one of two camps: those that don’t want to retire and those that can’t afford to. Kevin Wesbroom, a senior consultant at Hewitt Associates, explains: "One is the classic knowledge worker who doesn’t want to work as hard but doesn’t want to be thrown on the scrapheap. They want to be able to do something less demanding in terms of hours but something which can use their skills. The other case is someone who is just [worn down] and wants to stop doing what they are doing but has a [inferior defined contribution pension] scheme that has gone down in value or hasn’t gone up in value as much as they wanted. They’re just going to sit there which is a bigger problem for employers."
Not least is the underlying feeling of resentment and demotivation from staff that are forced to continue working purely for financial reasons. When faced with a daily dose of surliness from staff, employers may find it tempting to come up with a financial package staff cannot refuse simply to remove problematic individuals from the workplace.
If the issue has arisen as a result of a company pension scheme providing insufficient funds for retirement, however, organisations may find that their original one-off payment to a dissatisfied member of staff quickly snowballs into a whole new benefit. "To actually move those people out of the workforce, you’ve got to offer them something. The danger is [employers] end up making a number of ad-hoc deals [and] drift into an ad-hoc benefit design through the back door. So [they need to] face up to what that might mean, understand how they are going to deal with people with very inadequate benefits and think how they’re going to manage the workforce. There’s a danger it will [cost more] if you muddle along doing little deals here and there," says Hewitt’s Wesbroom.
Managing employees’ expectations throughout their career can help to reduce the likelihood of such a situation arising. If staff know what pension they stand to receive, they can hardly accuse their employer of leaving them high and dry when they finally come to retire. Wesbroom believes that much of the confusion stems from a lack of understanding around many organisations’ move from defined benefit (DB) to defined contribution (DC) pension schemes. "A lot of people have just simply said ‘how much do I need to put in to be reasonably competitive in the market, oh call it 5%, great, let’s pay 5%’. So they’ve buried their heads in the sand, employees don’t know the difference anyhow because they don’t understand pensions so they’re going to get a shock when they come up to retirement because they’re all working on a different set of assumptions as to what that is. My guess is a lot of employees will still expect their pension to be two-thirds [of their salary] from a DC scheme because they have no other benchmark."
Helping staff with financial preparations well ahead of retirement may ease or preempt the problem. Financial planning seminars for those in their forties, for example, may highlight that individuals need to put more aside in order to retire when they wish. "What people normally say on pre-retirement courses is that it has been left too late when it’s three-to-six months before retirement, especially in financial terms. You can’t develop good financial plans [that close] to retirement," says Chiva.
But whether staff want to continue working or not, flexible or phased retirement options are becoming increasingly popular. An HSBC survey The future of retirement in a world of rising life expectancies shows that a large number of respondents wish to continue working after reaching retirement age but on a more flexible basis. Philip Taylor, executive director, Cambridge Interdisciplinary Research Centre on Ageing at the University of Cambridge, says: "It will allow people to go out gracefully rather than go abruptly – which is currently the case. We need to look much more at making work a more attractive thing to do and for many older workers it isn’t: they’re tired, they’re worn out, they’re burned out and are desperate to go when someone gives them the opportunity."
While flexible retirement won’t work for all organisations, it can earn employers valuable brownie points with employees. Sam Mercer, director of the Employers Forum on Age (EFA), explains: "It’s proved to be so bad for people to be working full time one minute and the next [to be] adrift. The gradual retirement allows individuals to ease themselves out of working and get a feel for what it feels like to be not working everyday. It allows them to build up a portfolio of activities. It’s not this sort of brutal introduction to the next phase of your life. Frankly, the harder you work, the more difficult the transition is and there’s lots of evidence that people have suddenly stopped work and dropped dead within a year because their sense of purpose has completely disappeared. Somebody who’s not in work and doesn’t have a partner can be desperately lonely."
But employers shouldn’t fall into the trap of assuming that staff of a certain age aren’t capable of continuing to work full time. And, once age discrimination laws come into force on 1 October 2006, expectations will need to be carefully managed. "It’s quite easy to offer flexible working at the end of a working life, but we have to remember it isn’t always necessary because an individual can continue working on exactly the same terms and conditions as before [reaching] retirement age. The regulations all sound well and good but, in reality, if an employer doesn’t want to keep you on, they don’t have to. There’s going to be a real concern from employers that they’re going to be faced with a lot of individuals who are going to expect to be able to continue working on whatever terms they choose and are not going to be best pleased when informed they can’t," says Mercer.
The increasing number of employees facing eldercare issues will appreciate a little flexibility. According to the aforementioned HSBC report, 29% of UK staff believe caring for elderly relatives will be a serious concern as they get older. But the University of Cambridge’s Taylor believes that employers shouldn’t look at such policies in isolation. "There is a need to look at flexible employment options for older people but I would say those flexible retirement options need to be viewed alongside flexibility anyway. There’s a tendency to sometimes see older people as somehow different. I’d like to think about age and employment as being mainstream and not to see older workers as any different."
Mike Saunders, managing director of Wrinklies Direct, meanwhile, believes that age discrimination laws may prompt employers to do so as a matter of course. "What an older person very often finds is that money is less of a concern and of greater interest is flexibility and quality of life. There is an opportunity to sit down with individuals of a certain age to talk about requirements that suit both [employers and staff] better. The trouble is that age discrimination legislation is going to screw that opportunity. Organisations are going to find young people coming in and saying things like ‘Fred has worked here for 25 years and gets three extra days holiday, why can’t I have that?’."
Healthcare for older staff has prompted a similar debate. A concern for organisations is the increased cost of providing healthcare perks. "Older people do tend to accumulate these type of things so I don’t think we should shy away from talking about that. Organisations do need to look at health and wellbeing aspects. There hasn’t been enough attention paid to occupational health and wellbeing as they pertain to older workers," says University of Cambridge’s Taylor.
Mercer, of the EFA, however, disagrees. "There’s an temptation to assume that any older person that is staying on in work is going to have health concerns. But if they’re choosing to stay on in work, the likelihood is they will have no more issues than anyone else in the workforce."
But one point upon which most concur is that employers should address wellbeing issues for the entire workforce and not just staff over a certain age. Encouraging employees to look after themselves from an early age can help to guard against more serious health issues further down the line. "It’s about viewing working life as a continuum and not discrete stages. It’s about workforce planning," says Taylor.
Thinking way into the future, however, is not something that always comes naturally. In this instance, however, employers that successfully do so are likely to save themselves heartache and stress further down the line. "The people that are going to be affected are not those that are older today, but those that are going to be older in 10 years’ time. We’re going to see a generation coming forward that is going to see their pension plan’s unsatisfactory and [who must] carry on working," explains Saunders.
And UK organisations are not the only ones staring down the barrel of this particular gun. Ken Dychtwald, a global adviser on ageing to HSBC, predicts employers across Europe will all face similar issues in the long term. "[Organisations] to some extent hone their skills as employers based on a particular workforce and assume that workforce will essentially remain the same for decades to come and that’s not true.
"The workforce is going through convulsions right now. There is a huge number of men and women approaching retirement but because of the diminishing birthrate throughout Europe, there is a shortage of available young workers."
So just because staff reach retirement age, doesn’t mean they should automatically be consigned to the scrapheap. As Dychtwald concludes: "The combined age of the Rolling Stones right now is 244 years. They’re older workers and they seem to still be having a grand old time."
Age discrimination legislation
Age discrimination laws, which are due to come into force on 1 October 2006, could change the way that organisations offer benefits to staff. From this date, employers will have to offer all employees the same package regardless of age. This could mean that firms might need to review what they currently offer because some perks such as life assurance and selected healthcare products only cover staff up to the age of 65. A potential increase in cost will not be accepted as a valid reason for employers to offer reduced benefits to older employees.
Service-related benefits will also be affected because employers will need to provide a legitimate reason for providing any long service perks which are based on more than five years service.
Most occupational pension schemes remain exempt from the legislation, enabling organisations to continue to offer different types of schemes for existing and new employees, and to impose age limits on entry and exit from a scheme.
Under these proposals there is no obligation on employers to offer flexible or phased retirement to their employees. Consultation on the proposed regulations will run until 17 October 2005.
Case study: The London and Quadrant Housing Trust
The London and Quadrant Housing Trust has developed a set of policies specifically aimed at its older employees.
These include unpaid leave on the birth of a grandchild, subsidised health screening for the over 55s and retirement planning, which is also available for younger staff.
Tom Nicholls, assistant director of human resources, believes that an age-diverse workforce has some valuable benefits for the organisation. "Often, older workers may have a wealth of experience. We wouldn’t want all older or all younger workers." He adds that older employees often bring new ideas to the business and can act as mentors to younger staff.
A range of flexible retirement options are also available for both existing and new staff. "We have a number of people that have worked full time but want to carry on not necessarily in the same role. It helps them to wind down and then make that change, which can be a big change if you’ve been working your whole life," says Nicholls.
However, the organisation has found it is not able to offer all benefits to staff over retirement age. "If they are of pensionable age, they are not able to join the pension scheme," he adds.
Case study: Wokingham District Council
Wokingham District Council encourages staff to continue working past retirement age in order to fill key skills gaps.
It currently employs around 20 employees over the traditional retirement age. Anna Machens, HR officer recruitment and retention, explains that the practice evolved from employees’ desire to continue working and a need to fill key roles with the organisation’s social care department. "In social care, where we’ve got a staff shortage, we’re encouraging staff to stay on. In fact, they get a flyer with their retirement pack asking them to stay on. It’s [also] recognising that there are a lot of staff that don’t want to give up work for financial reasons or whatever."
Although the council doesn’t currently specifically recruit staff that are over retirement age, its recruitment policy is currently under review and may alter in line with next year’s incoming age discrimination legislation.
Machens adds that employing older workers hasn’t impacted on any of the organisation’s benefits although it does offer carers’ leave, which is judged on a case-by-case basis. "We offer carers’ leave because we realised that older people are likely to have needs; as well as [those] caring for older relatives or partners.