Retirement ages have been a contentious issue in the United Kingdom for several years. Some employers and employer groups are adamant that having a fixed retirement age is essential for workforce management. Others, including older people’s representative groups, see a default retirement age as discriminatory.
The structure of our society is changing as life expectancy increases, and we need to fundamentally re-appraise the increasingly important role older people play, and the wealth of talent and experience they can bring as employees and entrepreneurs. They have a vital contribution to make to our economic recovery and long-term prosperity as well as a wider role in their families and communities.
The statistics are striking. In 2007, for the first time in UK history, pensioners outnumbered children. Life expectancy at age 65 has increased by 40 percent over the last 25 years. In the UK there are currently four adults under 65 for every one over 65, and this ratio is projected to drop to 3:1 within 10 years and 2:1 within 30 years. However, planned changes to the State Pension Age mean that the number of people of working age compared to those of pension age is forecast to remain at 3:1.
This aging of the population will put greater demands on pensions and health care in the future. However, pressure on funding is only one issue we need to consider. Many people want to continue working past the State Pension Age. Around 1.4 million people over the current State Pension Age, 800,000 of whom are aged 65 or over, are working. We want to make sure that everyone has the choice to work longer if they want to.
The Default Retirement Age (DRA) was introduced in 2006 as part of legislation introducing protection from discrimination on grounds of age. It allows employers to set a retirement age of 65 or higher; employees must be notified in advance and have the right to ask to work beyond this age, but an employer does not have to offer any justification for the retirement age. It is fair to say this was always a controversial piece of legislation.
In its coalition agreement, the government made a commitment to phase out the DRA. It makes no sense that people in their 60s sometimes get written off and feel that if they lose their job or struggle to find work, they should retire early.
We believe very strongly that there should be no situations under which people can be made to leave a job simply because they are “too old,” and without any justification. This is not the same as saying employers should not be able to remove employees who are not performing; where someone is not doing the job the employer should of course take action. However, that action should be the same as it would be if the employee were 20, 30, 40, or 50. Simply because employees are older, they should not be treated as though it is inevitable or excusable that they are not performing.
We know that older employees value the ability to work flexibly or in “nonstandard” work patterns. This is one reason why we are working on extending the right to request flexible work to all employees. We are also reforming the system of welfare benefits so that it better supports people to remain in and move back to work; and we are seeking to reform the State Pension and other welfare support for people over the State Pension Age, so that anyone who works sees a financial reward.
There are valid questions about how the economy and employers adapt to an aging population and workforce. However, there are also a lot of myths and outdated assumptions about older people’s capabilities. In particular, it is a myth that ability to do a job declines with age; there is strong evidence that, at least until age 70, the ability to do almost all kinds of work does not decline.
These misconceptions have a negative impact on the economy, individuals, and organizations. As the population ages we need people to work longer (as well as save more) to fund their retirement; failing to allow people who are willing to work longer sets us back on what is already a difficult road.
Working longer is good for the economy. If everyone works a year longer, gross domestic product could increase by £13 billion. UK and international evidence shows that more people working helps the economy to grow, proving that on an economy-wide level, older people working do not block jobs for younger people.
People can improve their financial position by working longer. Those working beyond the State Pension Age do not have to pay National Insurance contributions and can receive higher tax allowances from age 65 onward.
It is not all about the economy and pension funding, although these are important. The impact of being made to retire on individuals can be dramatic; it is more difficult for older people to find work, partly due to the same misconceptions that forced them out of work in the first place, and being made to leave work may mean they have a lower income for the rest of their lives.
The majority of employers in the UK do not use retirement ages, and many that have used them have removed them and found no negative impact on their business. In fact, many have found a positive impact through improved retention and reduced costs of recruitment and training.
Surely we are taking the right approach to this issue, allowing people to contribute to the health of the economy, their own financial position, and their employer’s competitiveness.
Steve Webb, member of Parliament for Thornbury and Yate, became minister of state for Pensions in May 2010. Previous parliamentary responsibilities have included being the Liberal Democrats’ spokesperson on Work and Pensions from 1999–2005. He also worked as the Liberal Democrats’ spokesman on Health (2005), chair of the Liberal Democrat Manifesto Group (2006), spokesman on the Environment, Energy, Food and Rural Affairs (2007), and spokesman on Energy and Climate Change (2008).