Mantra for our times - work longer
By Nicholas Timmins
Published: January 15 2004 18:01 | Last Updated: January 15 2004 18:01
A couple of years ago my mother, then aged 80, had her bag snatched outside her church one dark and rainy evening. Never one to be pushed around, despite her diminutive size, she set off after the perpetrator. She chased him some 400 yards before losing him in one of south London's less salubrious housing estates. She very nearly caught him. To this day I am not sure who I would have been more worried about if she had.
This month, she gave up the very last of her paid employment - a tiny honorarium for acting as treasurer to an association.
It is one small example of the way the future is already with us - one where people are living longer, healthier lives and as a result, many analysts believe, are going to have to work longer to fund their old age.
In industrialised countries around the world, official projections of life expectancy are being revised upwards. Last month Britain's government actuary lifted his estimates for those now in their sixties and eighties by between 10 and 13 per cent. The previous estimates were published only two years ago.
This shift, coupled with falling birth rates, means people will need to have longer working lives and to save more during them to pay for their retirement.
Longer working lives will, however, require a profound cultural shift that both employers and employees have barely begun to grasp, a report from Britain's House of Lords warned last week. If compulsory retirement ages are to go - the direction in which age discrimination policies are moving in some countries - job assessment will have to be based on competency, not age.
This will mean challenging some long-established ideas about promotion and pay based on seniority. Employers will have to operate transparent personnel policies, justifying who is recruited, promoted, demoted or made redundant. And "employees will have to accept regular monitoring and assessment of their job performance", the report says.
Employees across Europe, where early retirement has become entrenched in the past 20 years, will face a significant challenge to the widespread aspiration to finish work early, says Philip Taylor of Cambridge University's Interdisciplinary Research Centre on Ageing.
Longer working lives also imply that an individual's last job is likely not to be his or her most senior one. "That is not something many people feel comfortable with yet," he says. "It is not just about how people feel about themselves and their status. It is about how your co-workers relate to you, if you move from being a senior manager to a more junior one, or even down to the shopfloor. But it needs to be encouraged".
This issue is one that companies are thinking about, but few if any have yet tackled, says David Yeandle of the UK's Engineering Employers' Federation.
"It's a big problem," he says. Promised changes to pension rules in the UK will make it possible for the first time for people to draw a pension and carry on working for the same company, something the US does not permit. "There are also plenty of examples of senior managers retiring and being employed as consultants on a part-time basis to retain their expertise," he says, "or of people changing companies to do the same thing.
"But for someone in junior or middle management to downgrade to a lower-status job in the same company is much harder, although I suspect it is much more of a problem for men than for women. Women seem much more prepared to do a different range of jobs and take work that was traditionally men's jobs, while men have not been good at taking what were seen as women's jobs.
"Not a lot of men will feel comfortable after working their way up to middle or junior management to go and take a job back 'on the tools' or in a more junior position. It is a big culture change that is required."
This is equally true for companies, many of which will find that the shrinking supply of younger workers as birth rates fall means retaining people longer.
"If you look at the demographics across the economy as a whole you can see a train wreck coming. Employers are going to have to scramble to find the talent they need," says Jeff Chambers, vice-president of human resources at SAS, the privately owned US software company.
The average age of SAS's 5,000 employees is now 41. Within the next five years, a quarter will become eligible for retirement. For the first time in its 27-year history, the company is having to work out how to retain older employees.
"I think a lot of employers will introduce phased retirement programmes. Major corporate employers will have to come up with a value proposition [to older employees] that offers reduced hours and more flexibility," says Mr Chambers.
Phased retirement plans come in many forms. Toyota allows its production line workers in Japan to return to work on annual contracts after retirement at 60.
Similarly, before its acquisition by Pfizer, Pharmacia, the pharmaceuticals group, allowed US employees to work up to 1,000 hours per year after six months of retirement, during which they could make employee contributions to their 401(k) retirement savings accounts.
Such arrangements not only ease the psychological transition between full-time employment and retirement; they also encourage experienced employees to stay on for a few extra years. But tax rules that prevent workers receiving pension benefits while they remain in service are putting a brake on such initiatives.
Partly as a result of this, surveys for the US Society for Human Resource Management show that while two-thirds of employers are considering formal phased retirement plans and similar arrangements, fewer than 10 per cent have specific policies in place.
One suggestion that has surfaced in the UK is that pensions should be based not on final salary but on a percentage of career-average earnings. That would not only make company pensions cheaper to provide, it would also make it easier for people to work fewer hours, or in a less senior job as they near retirement, without taking a big hit on their final pension.
Longer life is also putting pressure on the age at which state pensions are paid. Sweden has become the first country to make its state pension age actuarially adjusted - so that as life expectancy rises, it will rise in line. Japan is raising state pension age from 60 to 65, the UK is doing the same for women. Elsewhere the debate is on over whether current state pension ages can hold in the face of greater longevity.
But in all this, for both state and private provision, there is a silver lining. While individuals may have to work longer they will not necessarily have to work for that much longer, according to Donald Duval, president of Britain's Society of Pension Consultants.
"If people work on just an extra two or three years, there is a gain both ways," he says. "They are reducing the length of time their pension has to fund them for, and they are paying taxes which helps with state provision, and quite small changes in state pension age can have big effects on the costs."
Quite how big the impact is on both public and private finances depends, of course, on whether people are working full- or part-time. But Mr Duval says: "While we are all going to have to go on working longer, it may not necessarily be to 70 or 75. It may be to 67, or 68 or 69."
Additional reporting by Simon London |
