A life's work

As more people choose to stay at work beyond retirement age a more flexible approach to retirement is needed, says Roger Trapp

A whole generation of employees is contemplating the prospect of working well beyond current retirement ages to avoid the nightmare of an impoverished old age. This is largely a response to stock market falls of recent years, which have sharply reduced the value of pension funds and other investments.

But demographic change is also driving the move towards a more flexible approach to retirement – a point that the Tomorrow Project stresses in a report published by the CIPD in March. A declining birth rate, coupled with the trend for people to enter the workforce later, means that less money can be raised through taxes to support the increasing number of older people.

This situation is not unique to Britain. The Four Pillars project on work and retirement, run by the Geneva Association research centre, has identified similar pressures across Europe. As a result, there are moves towards later retirement ages or longer pension contribution periods, greater flexibility in retirement, and a relaxation of the bars on working while collecting a pension.

The Geneva Association’s opinion that society needs to respond to demographic and economic change by taking a more flexible view of the whole of an individual’s working life is echoed in the Tomorrow Project’s report: The Opportunity of a Lifetime: Reshaping Retirement. Authors Michael Moynagh and Richard Worsley call for a "reshaped retirement" as part of a policy of mixing and matching work, extended leisure and learning throughout people’s lives. While this seems more appealing than the delayed retirement that many workers fear, it is clear that in the short term such a change in approach is going to be more a pipe dream than a reality.

Some people are opting to stay at work beyond the retirement age, either with their existing employer or – because of Inland Revenue rules preventing an employee from drawing a pension from the same company they are working for – another one. Research from HR services company Reed Consulting and Age Concern London found 48 per cent of people aged 50 or over intended to work beyond the state pension age, including 23 per cent who planned to work "until forced to stop". The researchers call this a huge shift, given that only 9.2 per cent of people over retirement age are currently still working.

Two pieces of legislation due to come into effect in 2006 are expected to accelerate the move towards flexible retirement. There will be a relaxation of Inland Revenue rules preventing employees from drawing their occupational pension while working, and the implementation in the UK of an EU directive on age discrimination.

Yvonne Bennion, associate adviser with the Work Foundation, says that companies will need to respond to these developments by examining their policies on such issues as fixed retirement dates and flexible working. While the latter is already on the agenda because of legislation designed to help working parents, the overall effect is likely to require companies to treat employees more as individuals than they have typically done in the past. That means recognising that later retirement will not suit everyone. As Bennion points out, the ability to carry on working beyond the current retirement age will depend on a particular employee’s fitness and health, especially if he or she is doing physically arduous work.

Inevitably, some companies are ahead of the pack. Among those featured in the Department of Work and Pensions’ Age Positive campaign is the Nationwide Building Society, which introduced a flexible retirement option in October 2001. This allows employees to work for up to 10 years beyond the society’s normal retirement age of 60. Nationwide claims that this policy benefits customers, employees and the organisation itself.

At Tesco the retirement age for most employees is 65, but about 2,500 of the retailer’s 200,000-strong UK workforce have taken advantage of a flexible retirement policy introduced more than a decade ago. As a result, shoppers have a good chance of coming across staff in their 60s, 70s or even 80s, according to group benefits manager Mark Roberts. He stresses that this is of real benefit to the company because such people "really know the business" and have a rapport with customers.

But Roberts does not pretend that the policy is without difficulties. One issue is helping young managers in their supervision of older workers, which the company deals with through training. Tesco also recognises that there may be performance management issues for older workers. So employees over the age of 70 have regular meetings with managers to ensure, as Robert puts it, that "it’s in our interests and their interests" for them to continue in their jobs. Where possible, the company supports them in moving to more suitable roles if necessary.

Tesco has not analysed the type of person who opts to work beyond "normal" retirement age. But Roberts suspects people without families are more likely to choose to stay at work – for social as much as for financial reasons.

Choice is seen as vital, which is why the TUC has long lobbied for separating the ages at which employees can retire and at which they can draw their pension. But Michelle Lewis, TUC pensions officer, remains concerned that people should not be forced either to leave the workforce earlier than they want to or stay in it once they no longer feel physically or mentally able to work.

Even if such issues are dealt with through what Peter Boreham, associate director with HR consultancy the Hay Group, calls "supporting policies", there will be problems, at least initially. Just as many have used the Inland Revenue rules on employees drawing pensions as an excuse for turning down requests for a gradual move to retirement, so it is likely that some will argue that the new situation is too complex. But ultimately, they will have to face up to it – if only because older workers provide labour that, because of those demographic changes, is in increasingly short supply.

Further information

The Geneva Association: www.genevaassociation.org

Institute for Fiscal Studies: www.ifs.org.uk

The Work Foundation: www.workfoundation.com