Citywire: Why older workers are so precious
by Dr. Ros Altmann
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A retirement revolution is needed in the Western world. As life expectancy has been rising inexorably during the past few decades, while birth rates have been falling, the aging population poses major challenges to all economies.
The scale of our demographic challenges is so large that immigration cannot realistically be expected to replace the numbers of over 50s who might leave work. By 2022, there will be 700,000 fewer people aged 16 to 49 in the UK – but 3.7m more people aged between 50 and state pension age. If the over 50s continue to leave the workforce in line with previous norms the economy would suffer serious labour and skills shortages on a scale that could not be filled by immigration alone and there will not be enough young people to support ever-rising numbers of economically inactive pensioners.
For many years, the focus of attention has been on encouraging people to save more and increase their pensions in order to ensure an aging population can be supported sustainably. Of course saving more is important, but the amounts that would need to be saved to provide a decent income level to last for ever-lengthening periods of retirement are too high to be realistic for most people. And many people have large levels of debt that need to be repaid too.
So, working longer also has a vital part to play as part of the solutions to the pensions crisis.
This is not bad news though – it could be the answer to future concerns about demographic challenges and secular stagnation. Many of those reaching their 50s and 60s do not feel ‘old’ and want to keep working – both to earn more but also for the social interaction and stimulation of work itself.
A rapidly aging population means a potentially enormous rise in the numbers of people not working but if older people keep working longer, the burden of support falling on younger generations should reduce significantly and the productive potential of the economy will rise as spending power increases. Overcoming barriers to later life working can boost prospects for both old and young.
In fact, increasing numbers of older workers are good for the economy, good for business and good for younger workers too. It is therefore important to ensure as many over 50s who want to work can do so.
Encouraging and enabling those who want to work longer to do so has the power to increase our country’s economic activity significantly in the coming years. It could actually provide a major boost to the economy. Research by the National Institute for Economic and Social Research shows, as an example, that if all over 50s worked an extra 3 years this could add up to 3.25% to real GDP per year by 2033 which is equivalent to an extra £55 billion a year in 2014 GDP terms. Even if everyone worked one year longer it could add 1% to growth.
Working longer obviously means higher lifetime income and this has the potential to ensure more people have larger pensions too, as there are more years during which to save. For example, someone on average earnings of £25,000 a year who works for an extra three years would earn an extra £75,000 in their lifetime. If they save 8% of salary they could have a pension around 15% larger for the rest of their life. With more people staying in work, rather than retiring, there will be more output and spending power in the economy which will mean higher economic growth and better living standards for all of us.
Helping older people work longer could also transform the long-term future of British business as well as the economy. The over 50s are a major untapped resource – a hidden talent pool that can boost output. It is important to stress that this does not mean taking jobs away from young people either. Academic and historical evidence shows that, far from damaging job prospects, keeping more older people in work means rising employment and wages for younger people.
It is simply not true that each older worker in a job, denies employment to a younger person. Research shows that having more over 50s in work is actually associated with both lower unemployment and higher wages for the young. There is not a fixed number of jobs and the more spending power in the economy, the more jobs can be created. In an individual company there may be a fixed number of positions, but only over the short-term. If demand for the company’s goods or services declines, it will reduce the number of jobs, but when demand increases, more jobs are created. This also applies to the economy as a whole. So keeping more older people in work, ensures they have more money to spend. Conversely, if more older people stop work, they will have lower spending power and ultimately there will be fewer jobs for younger people.
Historical evidence supports this conclusion too. For example, the 1970s ‘Job Release Scheme’ tried to encourage older people to leave work and ‘release’ jobs for the young, but the policy failed. Rising early retirement was accompanied by higher unemployment for younger people. Similar policies in France and Germany had similar results and economists subsequently concluded that encouraging more older people to retire does not increase employment prospects for young people over time. It can actually have the opposite effect.
It is also important to stress that this is not about forcing people who are too ill or too old to work, to stay on. The reality is that attitudes to later life working have changed in recent years. The retirement revolution is already underway.
Recent surveys have all pointed to the rise in intended retirement ages among current workers aged over 50. But they want to work part-time rather than full time in their last few years of work. I commissioned a recent YouGov Survey which confirmed that around half of workers over age 50 wanted to keep working between ages 65 and 70. This could mean an extra 4.8million people working past age 65 in future years.
Most of them want to work part-time, so that retirement becomes a process of cutting working hours, rather than a one-off event stopping altogether. Therefore, the new pension freedoms offer the chance for people to draw on some of their pension to make up for any income shortfall, or to pay for retraining in later life to take up a new part-time career, or self-employment, before stopping work for good.
Unfortunately, older people face ageism and age discrimination in the jobs market and particularly major hurdles in recruitment. There remains significant ageism in the workplace, with older workers facing barriers to promotion, to training opportunities, to re-skilling and to returning to work after time out, whether due to redundancy or caring.
Although the Government has abolished the default retirement age and extended the right for everyone to request flexible working, much more is needed. JobCentres are too often failing older applicants. More empahiss should be given to those older workers who need new skills and opportunities for retraining and career reviews as well as more flexible working. Research shows that older workers are no less productive than younger workers and most are capable of learning new skills readily. The idea that it is not worth training older staff is outdated.
Older women face particularly problems as the sharp rise in women’s state pension age without sufficient notice has left many women facing income shortfalls they could not have foreseen. Women now reaching their 50s and 60s have been especially disadvantaged in terms of lifetime income and pensions, and face particular workplace barriers. They are more likely than their male colleagues to be carers which can have an impact on how they manage work and on the ability to earn reasonable incomes.
Self employment can help some to overcome the workplace ageism, however to property address the barriers I suggest employers and Government need to focus on the 3 ‘R’s for older workers:
- Retain – keep older workers and their skills in the workplace through, for example, flexible working;
- Retrain – provide ongoing workplace training irrespective of age and opportunities for mid-life career reviews; and
- Recruit – stamp out age discrimination from the recruitment process.
Many businesses have already recognised the opportunities to benefit from keeping on or taking on older workers, as well as young recruits. This is not just about helping older people, it is also about improving the bottom line. Many companies have begun to experience skill shortages and are trying to attract older workers, but others are also recognising the increased staff and customer satisfaction that can result from an age-diverse workforce. Here is what Jenifer Richmond, HR Director of National Express says:
“Taking on and retaining older workers isn’t about compromising or bowing to political correctness – it makes sound business sense… a good mix of older and younger employees often make up our best performing teams. Mixing with and learning from older staff is often the best way in which our younger employees and apprentices can learn, as well as being a great example of being reliable and having a positive work ethic. Our customer base is diverse in age, and it is important that we have a workforce that reflects that.”
So more later life working is a win-win – individuals can improve their financial, physical and mental health if they keep working, rather than retiring too young. Businesses can benefit from having experienced staff to meet the demands of an aging customer base and the economy benefits from more spending power in years to come.