Some of those obliged to retire at 65 are headed not for cruise ships and balmy beaches but “down the social”. It’s because of a rather inconvenient truth – you may have to retire on your 65th birthday but your State pension won’t start until you are 66. In years to come, it will be 68. Right now, the only thing the Government offers to bridge the gap is jobseekers’ benefit.
"The retirement age/pension age mismatch is a big problem and not everyone is conscious of it," says Bernard Walsh, head of pensions and investments at Bank of Ireland.
Even those with private pensions will see the impact, because these are typically structured to take into consideration the State pension element.
Though employers cannot discriminate on the basis of age, there are still occupations with a mandatory retirement age of 65. However, the changing nature, and improvements in flexible work practices, may help.
“In the old days, you’d get your gold watch and your cheque and off you go. More and more now we are seeing that in the run-up to 65, people are working shorter hours, fewer days, and post-65 they are continuing on like that, or engaging in consultancy or project work. We see that continuing,” Walsh suggests.
The problem is, working longer assumes people will have the health to do it, “if you work in construction say, is that really true?” he asks.
Who is to say someone is less of a fire fighter the day after their 65th birthday?
So, what will people do? “We expect a couple of things to happen, including more people trading down to smaller houses, say from a three-bedroom semi to an apartment, freeing up capital gains to live on. We will also see people working longer where possible. Retirement savings is still the best way to fund that gap and additional voluntary contributions can help make up that gap, but how many people are doing it? Not enough.”
As a society, we should welcome the fact that people are living longer. We also need to recognise that, as an economy, we can’t afford to exclude older workers from the workforce and lose their skills and experience.
Very few occupations have fixed age limits, points out Alistair Byrne, head of EMEA pensions and retirement strategy at State Street Global Advisors. They include firefighters. “Who is to say someone is less of a fire fighter the day after their 65th birthday?” he asks.
‘An issue of affordability’
The UK has pretty much abolished compulsory retirement ages since 2011 and it’s the way the trend is moving, he says. “People are living longer and are going to have to work later in life. The ages will have to increase, it’s an issue of affordability, and of making use of the capabilities of our population.”
Many people in their 60s want to continue working. “At 65, they have at least 20 years’ life expectancy, so it’s not surprising that retirement age is increasing and 68 is in line with what’s happening with other countries in the developed world. It’s a case of taking away the artificial barriers to that, removing statutory retirement ages and removing mandatory retirement ages from contracts of employment, and focusing more on the capability and willingness of employees to continue working.”
If someone is fit and able to work, and wants to, there shouldn’t be statutory or contractual provisions stopping them, he says,
What’s more, as a population, we can’t afford to. “We need to use their skills and abilities,” says Byrne. “We should also accept that maybe the jobs older people do will be different but that’s very different from saying you shouldn’t be working. We’ve been too binary about it until now, saying you’re either a fire fighter or you’re retired. We need to look more at reskilling, retraining and reassigning people,” says Byrne.
To go off a cliff from working full-time to full-time retirement is not what people want
State Street’s research suggests that half of employed people expect to work beyond the traditional retirement age. “Many say things like it’s because I want to, I value the challenge, the sense of purpose and the day-to-day human engagement. For others, it’s financial but generally it’s a combination. They may not want to work a five-day week, but to go off a cliff from working full-time to full-time retirement is not what people want.”
Employers are already seeing greater numbers of requests from employees wanting to stay on after 65, according to James Campbell, a senior consultant with Mercer. The delayed State pension payment may be a part of that but the problem facing both employers and employees now is that such requests, and responses, are inconsistent. “At present, it’s quite ad hoc, very few employers have policies in place to address this.”
The UK abolished mandatory retirement age in 2011, which gives employers there a clearer picture. Here, there is more uncertainty.
While the Government published some guidelines on the issue last year, it’s still a relatively recent phenomenon and employers are as yet trying to figure out how best to accommodate older employees – “and more of them”, Campbell says.
The positive side is that it may suit both parties, the downside is where the employer accumulates greater numbers of older workers than they want or need.
If a worker is not adding value, it can be hard to get them to leave. Employers are erring on the side of caution. While it’s not illegal for employers to impose a mandatory retirement age now, it is more difficult, “The whole area is fraught,” he says. For employees trying to cope with a delayed State pension, it’s more fraught still.
