Championing older workers is vital – a social revolution is underway
Over 700,000 people may retire each year – lost income to businesses and individuals
Working just one year longer would add 1% to economic growth – an extra £16billion a year for the nation
by Dr. Ros Altmann
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Having worked on the issues surrounding rethinking retirement and extending working lives for many years, I am delighted to be able to play a more direct role in this social revolution that is already underway. I believe passionately in the value of staying in the labour market, ideally part-time in later life, and see this as an all-round positive development for society.
Individuals will have higher incomes and will therefore be able to afford better pensions. A continuing income stream also means that their pensions won’t need to fund as lengthy a period of non-earning in later life. Instead, those who go on working – whether full-time or part-time – will increase the potential growth of the economy as well as continue to be, and feel, valued. Too many people retire when they are still capable of making a strong contribution to society and to the workforce. The talents and experience accumulated throughout working life don’t suddenly stop being valuable at the age of 60 or 65.
Nobody should be forced to keep working, but equally, those who can benefit from staying economically active should be encouraged and enabled to do so. At each age from 50 and older there are at least 700,000 people who may stop working every year. To put this in context, less than 200,000 immigrants come in to the UK each year. Retirement means mean lost income to many individuals, both now and in future, and lost output to the economy. As well as the financial implications, though, those who have already retired often miss working, not just because they have such reduced incomes, but also because they miss the social interaction, daily structure and positive feelings that derive from work.
Employers often have ageist attitudes which mean they fail to make the most of the knowledge and skills of their workforce, and challenging these attitudes will benefit businesses as well as employees. The number of over 50s will be soaring in the coming years, and it is vital that we ensure they have opportunities to earn and save more, as well as continuing to contribute to the growth of the economy as a whole.
For many years, I have been highlighting the need to consider retirement as a ‘process’ rather than an ‘event’ and to enable people to leave the labour market more gradually, by enjoying a period of part-time work before stopping altogether. Until now, retirement has often been an irrevocable step; a more gradual move will make the transition easier to manage both financially and personally. But most people are no longer ‘old’ in their 60s. Societal attitudes are changing and staying at work for longer needs to reflect those changes and become the norm. Just as we have redefined work for mothers with young children over the past 30 years or so, we can now redefine work for older people.
This will bring benefits to the individual and also to businesses who retain experienced staff for longer. In addition, all of society will benefit from the additional production and income generated in the economy as well as from the health and wellbeing benefits that working longer can bring. If everyone works just one year longer, this would boost UK economic growth by at least one per cent – which is at least an extra £16billion a year. That can offer a permanent boost to economic activity and will help both older and younger generations. It’s a win-win, let’s help make it a reality.
Employers will need to play their part, as individuals seize the chance to make this happen.
Notes for editors:
Longer working lives becoming a reality:
MetLife Survey results, from a nationwide Survey of 2000 adults confirm the trend to later life working is already underway.
Some of the survey highlights are:
- 71% of workers said they would consider working past state pension age, in order to achieve a higher retirement income
- Only 8% of workers said they would not be willing to work on, even if that meant they had to struggle financially
- Only around 20% of workers believe they are saving enough for retirement.
Working longer brings significant income and capital benefits. Every extra pay cheque will give them more income than they would otherwise have had. Working longer brings a number of financial benefits:
- higher lifetime income from extra years of work
- larger pension fund as pension contributions could continue while still working
- pension income needs to last for fewer years as it starts later
- pension income therefore can be higher each year
Staying at work can enhance later life. Not only does it bring in more income, it can also keep people healthier – both physically and mentally. Table 1 shows that the majority of people expect to be fit enough to work beyond their mid-60s.
TABLE 1: Ability to work beyond age 65
Do you think you will be physically fit enough to work in your current job beyond your mid-60s? Age 60+ Age 50-59 Yes 76% 60% No 10% 17% Don’t know 14% 23%
The majority of people will consider working longer, particularly part-time, in order to achieve a much higher retirement income.
TABLE 2: Attitudes to working longer
Would you consider working longer to have much higher retirement income? Age 60+ Age 50-59 Yes 66% 71% I would consider working full-time past state pension age to have much higher retirement income 24% 27% I would consider working part-time past state pension age to have much higher retirement income 42% 42%
Although a significant proportion believe they cannot afford to retire, working longer is not just about money – there are other reasons for staying on at work. Many believe they are not ready to retire, especially those already over 60, who say their job gives them a sense of purpose in life, that they would miss the social interaction of work and they want to save more for retirement.
TABLE 3: Reasons for wanting to keep working
Why would you want to keep working past state pension age? Age 60+ Age 50-59 I can’t afford to retire 32% 44% I enjoy working and don’t feel ready to retire 47% 21% Work gives me a sense of purpose in life 34% 29% I would miss the social interaction of work 20% 31% I want to save more for my retirement 20% 19%
- Record numbers already working past pension age: According to the Office for National Statistics, the number of pensioners in work nearly doubled from 753,000 (7.6% of pensioners) in 1993, to 1.4million (12% of pensioners) in 2011. Two thirds of older workers are working part-time, the majority with their previous employer. The longer people can stay economically active, the more chance they have to protect their spending power and increase their future income prospects. Those who work longer will not only have more money immediately, but they will also have more chance to build up savings. Setting money aside for future income needs, even after age 60, can help meet the challenges of longer periods in retirement.
- Ageism in labour market: Some older workers feel they experience ageism at work and attitudes will take time to adjust, but increasing numbers of employers will realise the benefits of an age diverse workforce.
- The recent pension changes make flexible working in later life easier: The UK has a tremendous opportunity to revolutionise its retirement and pensions system over the next few years. Many of the restrictions and inflexibilities that have hampered UK pensions are being swept away, transforming the way we can think about retirement and pensions. This pensions revolution is part of a social revolution being driven by issues such as increased longevity, improved health in retirement and economic reality.
- In the past, retirement was not an active decision – it was an event that happened without a positive choice: In the traditional UK retirement model retirement was not an active decision, but an event that happened to people, dictated to them by outside forces rather than being a positive choice made by themselves. For example they automatically stopped work at their pension age or were offered the chance to retire early with a good pension funded by their employer. Workers were never encouraged to make pro-active decisions about how or when they would retire. Retirement just happened to them and then they would no longer work. In the 21st Century, retirement no longer needs to be standardised.
- Most people retiring now are still fit and healthy – what a waste of resources. Medical advances enable them to recover and live well with illnesses which would have disabled previous generations. The skills and talents of the over 50s are too often wasted. They are encouraged to or feel they have to stop work just because they reach a particular age. But as people are living longer and are healthier, they do not need to leave the labour force just because they reach a ‘standard’ pension age. Decisions about how, when – and even whether – to retire can increasingly become the choice of the individual. The old days of standard lifestyles that shoehorn everyone into the same mould belong in the past. The key will be to offer more flexibility in both working life and savings or pension products.
Pensions and retirement out of step with people’s lives: In the 1950s, when the current pension system was designed, the average worker would start working at age 15, work for about 50 years until age 65 and then live for a further five or 10 years in retirement. That meant most people would be working for two thirds of their lifespan (50 years out of 75). They would then be retired for perhaps 20% of the number of years they had worked (10 years out of 50). Figure 1 illustrates this.
FIGURE 1: In the 1950s, each 1 year of retirement was funded by 5 years of work, while nowadays each one year of retirement is funded by less than two years of work.
FIGURE 2: Proportion of life working vs. not working and retirement years relative to work years.
As the proportion of people’s lives spent working has fallen so much, the failure to move retirement thinking to match developments in health and life expectancy has left many living on much lower incomes for longer than they need to.
- Many people find retirement disappointing – need a new model: Retiring while fit and healthy has turned out to be disappointing for many. They often find they are bored or miss their work colleagues, do not have enough money and little structure to their lives. Some may have sufficient income to travel the world, participate in their hobbies and do voluntary work without any financial concerns, but they are a minority. The ideal would be to work part-time for a while, before retiring altogether. This would give them a better work-life balance, allow them to stay engaged in the world of work, help provide more income and enable a more gentle transition to full retirement. The retirement of the future will be one where people cut down work gradually and work part-time before finally stopping. They may keep working full time until their early or mid-60s, but then start to cut back rather than stopping altogether.