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25 May 2011

When I'm 65

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A s part of CXO’s Recovery Special, Ian Clover speaks with two employment experts for their thoughts on new British regulations that will scrap the default retirement age and asks – how can such a move help the economy, and what problems will it create for employers?


“Organisations that have removed retirement age have put the onus back on to their line managers to actually start intervening, to start managing people proactively and to no longer be shy about managing declining performance”

The Europe-wide battle against recession is currently one of the greatest threats to the stability of the continent, and it is being fought on many fronts. The issue of reducing national deficit is high on the agenda for most countries, and throughout Europe the prolongation of working life is being touted as a necessary move that will help prop up tax receipts and thus lessen the burden on stretched pension funds.

One inescapable fact is that the population of Europe is ageing. People are living much longer than before, but are still retiring in their early- or mid-60s. It is a situation that has become untenable, particularly in the current economic climate, where a contracted workforce is ill-equipped to steer the Continent's various economies through the stormy waters of high youth unemployment and a top-heavy population of retirees drawing pensions, often for 20 years or more. The Organisation for Economic Co-operation and Development (OECD) estimates that just 39 percent of Europeans between the ages of 55 and 65 currently work. This age bracket is even larger than the 15-24 age group; a bracket that is also suffering from high unemployment - the Statistical Office of the European Commission (Eurostat) estimates that 21.4 percent of Europe's under-25s are currently jobless.

These figures place enormous pressure on Europe's current working-age population. The lack of jobs for youngsters is a complex issue with few quick fixes, but governments throughout Europe believe they can at least assuage the problems caused by a capacious and burdensome retired population.

In an effort to aid economic recovery and ease the weight on an increasingly constricted workforce, the UK's Department for Work and Pensions (DWP) has set plans in motion to scrap the country's Default Retirement Age (DRA), which currently stands at 65 for men and 60 for women, by October 2011. The DRA was introduced by the Labour government in 2006 as part of a series of employment equality regulations that have allowed employers to force their staff to retire at 65 without any need to justify their decision. This ruling has been welcomed by some bodies, but is seen by other campaigners as a highly principled, rather than practical, move.

Rachel Krys, Campaign Director at the Employers Forum on Age (EFA), welcomes the decision. "On a purely principled level, the DRA is just wrong. It is age discrimination. It is highly unfair that individuals who, just because they hit a certain birthday, are basically sacked. They get no recourse. They cannot challenge the decision. All along, this has been a problem with the process of having a default retirement age. It is using a criteria based purely on age to make a decision on somebody's career."

Using age as a broad-stroke bellwether of somebody's ability to continue working has become an outmoded and anachronistic way of managing staffing levels. People throughout Europe are living longer and healthier lives. Europe-wide, the current ratio between those aged under 65 and over is 4:1, but this is predicted to drop to 3:1 in the next ten years, and 2:1 within 30 years. In the UK, the Office for National Statistics indicates there are currently 1.45 million people over the retirement age still working, a statistic that suggests those who are well enough to continue in work, choose to do so.

"Lots of employers are doing very happily without the DRA," continues Krys. "This proves that it is not necessary. The DRA sends the wrong message to both employers and line managers that there is a terminal point in someone's career where they can go no further. Even within organisations that exercise the right to request to stay on past 65, the DRA still sends a very clear message that, at 65, it is a time to question your suitability to work and your appropriateness for the job."

Since the DRA was introduced, it has been challenged on a number of occasions in courts throughout the country by campaigners arguing this very suggestion. The new coalition government was quick to identify the potential benefits of scrapping the DRA, with new Employment Relations Minister Ed Davey stating in September: "With more and more people wanting to extend their working lives we should not stop them just because they have reached a particular age. We want to give individuals greater choice and are moving swiftly to end discrimination of this kind."

Krys agrees that the current regulation is one of barely disguised discrimination against older workers. "There is currently a huge responsibility on employers to manage the staff they have got. They should be constantly questioning and assessing people's capabilities to do their job, rather than using this kind of big milestone birthday as a way of discrimination to avoid doing their own jobs properly."

Introduction of DRA

The DRA was introduced as recently as 2006. Prior to this, there was little in the way of a formal process, and this new process was challenged almost immediately, most famously by the Heyday Challenge that argued the legality of the new regulations in 2009. Faced with such a tumultuous backdrop to the ruling, the coalition government has been more than happy to scrap it. "The new government is under enormous pressure to reduce the country's deficit, of which the pension bill is a huge part. If everyone simply worked a year longer, it would knock approximately one percent off the deficit, so you're talking about a huge benefit for society and the government if people work that little bit longer," says Krys.

John Cridland, Deputy Director-General of the Confederation of British Industry (CBI) believes that, despite the government's best intentions, the scrapping of the DRA addresses the wrong issues. "The government has not thought about the real-world implications of what they are proposing," he says. "They have looked at this from a question of high principle, of fairness and equality, and with the idea of expanding the size of the labour market. I don't have a problem with either of those approaches, but they are very macro and theoretical.

"They [the government] have failed to look at this as a workplace issue, with all the implications that flow from that in terms of dealing with poor performance, retiring with dignity and management of staff and succession planning, for example."

Cridland dismisses the idea that allowing the workforce to work for longer will assist the economy as too simplistic. "I think people in the treasury have just looked at the size of the labour force and said 'If you increase the size of the work force you can increase the rate of economic growth'...but if companies cannot change staff in a team, then customer service can deteriorate. If companies cannot bring on younger staff and give them more responsibility because somebody is holding a job that they would like them to do, you get less innovation, and a whole series of individual blockages and consequences that can damage the ability of the business to perform in the way that it needs to."

Countering Cridland's fears that extending the working lives of older employees has a negative effect upon the job prospects of the next generation of young workers, Krys argues that an experienced, committed and knowledgeable workforce, comprising a fair percentage of those beyond current retirement age, is actually a boon for companies.

"The market does not operate like that. It isn't a one-in, one-out market. The types of jobs that older people are doing are not the types of jobs that young people are trying to get into. In fact," continues Krys, "if you look at OECD figures, in countries where they have a higher labour market participation of older people, they also have lower youth unemployment. At EFA, we did some work with McDonald's - who have increased participation of the older age group - and then analysed the impact that has had on individual teams within their organisation. We discovered that teams with a more diverse workforce were much more productive and higher scoring, and were actually creating more jobs than teams that were manned purely by people who were younger."

Figures from the UK's Office of National Statistics back up this report. The group of workers of post-retirement age, they claim, is the only one to experience an increase in employment since the economic downturn, with a reported 84,000 additional people from this age bracket working now when compared to a year ago. However, this statistic is skewed by the fact that many of post-retirement age have had little choice but to return to work since the recession in order to make ends meet.

Working past retirement

Not every employee approaching the default retirement age is going to want to continue working, and under the new rules they do not have to. The greatest change is that state pensionable age is going to increase to 66. Therefore, if an individual wishes to retire at 65, they must be able to provide for themselves for 12 months before drawing a pension.

"The government can get people working a little bit longer by applying a carrot and stick method," explains Krys. "The stick is that you are not going to get your pension until you are 66. The carrot is you will not be discriminated at work just because you hit 65. It has been a brave step by the government to remove this landmark date, and it places greater onus on employers to better manage people to become more productive. We need to take responsibility and ensure everybody we are employing is delivering and producing. At the moment, if you have someone coasting towards retirement, they might be coasting for ten years. Can we really afford to carry people who are coasting? Of course not. Also, we need to increase the availability of work options for people as they reach their 50s and 60s."

It will take some time for the culture of the workplace to adapt and change, but Krys argues that the removal of preconceived notions of when somebody is 'past it' will help change the perception of what to expect of employees when they reach their 50s - from both an employee and employer perspective. It is human nature to wind down and ease off when the end is in sight (just think of your own attitude towards work as 5pm on a Friday approaches), but if the finishing line remains undrawn, productivity is more likely to persist.

"Currently," says Krys, "the DRA means that people in their 50s are viewed as pre-retirees, so often companies will not bother with employing or training them. If the perception switched to 'they might still work for us for another 20 years' then not only is that a huge return on investment, but it can sometimes lead to more commitment and stability than you would get out of most 20-somethings you might recruit. This will also send a real strong message to employees; they will feel valued."

Financial constraints have led to a gradual increase in the length of time that people want to continue working. Currently, most people retire at the point they can afford to, or perhaps health reasons force them to cut their hours or leave the workplace entirely before they would otherwise be ready. Financially, the pivotal point of retirement for most people is when their pension peaks, their mortgage and other debts are paid off, or they no longer have to subsidise their children. To some, this pivotal point comes long before they reach the age of 60. For others, it arrives much later. It is at this stage, says Krys, that most people decide to retire.

"We are seeing that fewer people are getting to that position of financial stability by the age of 65," she says. "People have increasingly dependent children, larger debts, a decline in their pension levels and a decline in final salary pension schemes. There has also been a decline in the payouts people are receiving from private pensions and annuities. So people are opting to stay on. Not for very long - usually just for one or two years until that last financial hurdle has been overcome - but this flexibility makes such a difference. It will also make a big difference to the economy to have people working up to 65 and that little bit beyond."

Krys calls for a more flexible approach to the types of working options available for those approaching the current retirement age. "If people can take a little bit of pension and also build up a bit more reserves into a new pensions scheme or their existing pension scheme and draw some salary from part-time employment, that can really meet the needs of both parties. The employer can retain the talent and the individual can boost their income to a satisfactory level - which also creates a little bit more revenue for the taxman too. Everybody's happy."

Or are they? Who is going to suffer as a result of this more open-ended policy to retiring from work? "Tackling age discrimination is an important labour market issue, but we need to tackle it in a way that has the intended consequence, which is more work opportunities for older workers," argues Cridland. "However, it is the unintended consequences that I am worried about."

Cridland believes the unintended consequences will be manifest in more disputes throughout the marketplace. "The last thing we should be doing is finding more work for lawyers, but that will be the consequence here. The DRA is achieving a positive result, because the right to request to stay on after retirement is increasing the working age [currently, employees have the 'right to request' to continue working beyond 65 if they so wish]. Our CBI surveys reveal that as many as a third of employees at retirement age want to continue working in some capacity. It might be shorter hours or reduced responsibility, but they want to continue, and employers are able to accede approximately 80 percent of the time."

A healthy, happy and contented workforce comprised of both old and young workers is not something Cridland is against, but he does argue that sentimental decisions to prolong the working career of a much-loved colleague have no place in a market that is still striving vigorously to shake off the tepid torpor of recession. "There is no denying the positive side of allowing older people to continue to work," he says. "But to accept that you have to accept that there is another side too, which is every now and again somebody wants to stay on who the boss, the customer and the colleagues know is no longer up to the job; they no longer understand it or are unable to carry out their tasks satisfactorily. This happens all the time, and other people are forced to carry that person's work or get frustrated or leave, and new ideas do not get introduced.

"This is only perhaps one in ten cases, and there are probably nine positive cases for every negative one, but the default retirement age enables businesses to say: 'Sorry, in your particular case, it's time you went.'"

Energising the market

Since the introduction of the DRA in 2006, there has been, claims Krys, a stagnation of the job market, with employers stymieing the sort of flexible working practices that enable older workers to make an informed and personal decision about when, and how, they are going to retire.

One individual who has been fortunate enough to make up her own mind about her retirement is Margaret Huntley, a 73 year-old telephone operator from Yorkshire, who currently works for Nationwide in Swindon. Huntley has been employed at the company for the past 15 years and says that staying on was an easy decision to make.

"I felt fit enough, which is the main thing I suppose. And Nationwide made it easy for me - they made a decision a few years back to allow people to stay on with them up to the age of 75 before the DRA was introduced." With Nationwide's continuing support, the decision on when to retire lies solely with Margaret; a situation that suits her perfectly.

"I currently work 6.5 hours a day, three days a week, which is ideal. I believe that if people are fit enough and able to carry on with the job that they were enjoying and doing well in the first place, then I think it's up to the person themselves to decide." Margaret cites financial stability as one of the other reasons behind her decision, stating that the additional income allows her and her husband the financial freedom to enjoy their retirement to the full.

Older workers like Margaret who can still offer something to an employer are not the problem, argues Cridland. "You can have an older worker who is brilliantly creative, brilliantly innovative or brilliantly flexible," he says. "But you can also have an older worker who is dyed-in-the-wool, lacking in self-awareness, slowing down...businesses would want to keep the first and do something about the second. At the moment, employment law is so complicated and so difficult that to have a conversation about this is not as simple as 'you can't do the job'. You have to argue how maybe they can no longer do the job so well or suggest they have become a bit stale.

"Employers use retirement as a way to deal with those problems, and so we are leaving employers without the ability to manage their workforce." Managing these additional workers is not without its additional problems, and Krys is not unsympathetic to the future issues this ruling is going to cause an HR person.

"But I would just throw their qualms back at them and say that the employer has to employ people, and that means managing them throughout their entire working lives," she says. "We cannot duck it or avoid it any longer - we are not being productive enough. Therefore, organisations that have removed retirement age have put the onus back on to their line managers to actually start intervening, to start managing people proactively and to no longer be shy about managing declining performance and encouraging increased levels of performance."

Using the current DRA regulations to dodge potential work responsibilities is, believes Krys, leading to an atmosphere of age discrimination in many workplaces. She argues that HR departments are shy to the problem of tackling declining work performance among employees of any age, and simply rely on the easy get-out-clause the DRA represents. Cridland counters this claim by stating that it is not the responsibility of the employer to tidy the mess created by government action gone too far.

"The government has swung the pendulum to the extreme with this," he says. "If the idea is to encourage people to work longer and make it possible for them to do so, push the age of retirement up to 67, even 70. If government had decided in principle that there wasn't going to be a default age any longer, then it should deal with the unintended consequences, and that would have made it possible for businesses to deal with issues of underperformance, which they currently tackle by using the retirement age as a proxy."

Cridland advocates changing employment law to make it easier for companies to get rid of employees who are not up to the job. "Currently, it is very difficult, and companies use the retirement age to avoid an unpleasant row. Now, those unpleasant rows will take place, but the law is not going to facilitate that; the law is going to get in the way of it."

Fear of creating more work than is necessary is understandable. The current inflexibility of the law might well be exacerbated by the proposed open-ended nature of the new regulations, but it will also hopefully lead to greater communication between employers and staff. A more open discourse - arrived at through better performance management and the up-skilling of HR departments - will potentially result in a happier, more diverse and more productive workforce, which is no doubt the government's intended outcome.

"This is about increasing opportunities," concludes Krys. "People are going to have to work for longer because they are living longer. They are healthier, which makes them more expensive, so they are going to have to work a bit better. But we need to make sure that people are working good jobs, flexible jobs and jobs that suit them, and that is why we are creating a workforce and a jobs market for this future flexibility."


The Department for Work and Pensions (DWP) has produced a lengthy white paper on the benefits they believe scrapping the DRA will bring. Here are a few choice excerpts.

Benefits to firms

The abolition of the DRA is likely to benefit employers in two main areas:

  • Cost savings following removal of right to request procedure
  • Increased profits resulting from increase in labour supply

Savings from abolition of right to request procedure

Under the current DRA legislation employers incur costs when they retire an individual and when they receive a right to request to stay beyond the retirement date. The employer is obliged to take requests seriously, although no reason need be given to the employee if the request is turned down. Where requests are not accepted there is provision for an appeal stage and ultimately recourse to an external dispute resolution mechanism, which could be an Employment Tribunal.

Dialogue between employer and employee

In many cases, employers and employees have constructive discussions about their retirement plans. These discussions can include consideration of an employee's desire to change working pattern or role in the run-up to retirement.

It is argued that the current right to request procedure can provide a useful trigger for these discussions as well as enabling the employer to gain information that helps with workforce planning. We want such dialogue on retirement planning and alternatives to retirement (such as part-retirement), where this is beneficial to employer and employee, to continue. We are therefore seeking input from respondents on what the Government might do to support continued dialogue on retirement.

Employers using retirement ages under the DRA process have two choices:

They can stop using retirement ages, though they can complete any retirements where the employee has been notified before 6 April 2011 and where the retirement will be complete before 1 October 2011. The Government will provide guidance on managing without retirement ages.

They can choose to continue using a retirement age. However, when the DRA is removed, employers using retirement ages can be challenged in the courts to show that their retirement age is objectively justified. It is not easy to demonstrate that a retirement age is objectively justified, so the employer should be confident that it can be objectively justified before deciding to use a retirement age.

Productivity assumptions

The evidence on the productivity of older workers shows that they are no less productive than younger workers, except in a limited range of jobs. The findings from a review of the literature 41 were:

  • The evidence suggests that, except in a very limited range of jobs, work performance does not deteriorate with age, at least up to the age of 70. Since few people are employed beyond that age, there is virtually no evidence about work performance after the age of 70.

FACTS

  • The UK has one of the oldest average retirement ages in Europe, at nearly 64 for men and over 60 for women. In Poland, by contrast, it is 57 for men and 55 for women.
  • 274,000 people could continue in their jobs under the new rules
  • In 2012 there will be 772,000 people aged 64
  • 45% of 60 to 64-year-olds are currently employed
  • 21% of these are self-employed
  • British organisations that have scrapped the retirement age include Tesco, B&Q, HBOS, Asda, Marks & Spencer and the Co-op Group.

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