Over the next decade, the changing age profile of the workforce will be the most significant development in the UK labour market, as a third of workers will be over 50 by 2020. It is anticipated that within 15 years, nearly a quarter of the UK population will be aged 65 or over. Against a backdrop of low birth rates and increasing average life expectancies, these trends will lead to greater pressure on the working-age population to support retirees, financially and through care.
One way to help to reduce this pressure would be to encourage workers to delay retirement and remain in the labour market for longer if they are able and willing to do so. However, older people who wish to remain in employment often face practical, cultural, organisational and psychological barriers to finding and staying in work.
A recent study by insurance firm Aviva found almost half of older workers feel unsupported by their employers, despite the fact that millions are working longer. Aviva urged employers to do more to help this age group, such as giving practical guidance on retirement finances, offering flexible working hours and workplace adaptations to help them manage pressures such as caring responsibilities and health conditions which become more prevalent with age. The study warned that business which failed to support such workers “risked a disheartened and discouraged over-50s” workforce. Lindsey Rix, managing director of savings and retirement at Aviva said staff needed “fulfilling careers regardless of their age. Our findings suggest that older employees have a lot to offer at work, despite the challenges they face around workplace support”.
Greater equality of opportunities in the workplace is also needed. Older workers in the UK experience age discrimination in recruitment and progression. They are less likely to be offered opportunities for development and are less likely to receive training than younger employees, with only 45 per cent of those aged 65 and over having received one day of training in the past 12 months. Research shows they are also the most likely to be stuck on low pay and feel most insecure about their jobs.
Are older workers valuable to the economy?
Definitely. The tax-raising potential of this age group is huge. Official figures show that halving the employment gap between people aged 50 and state pension age and those in their 40s could see income tax and National Insurance receipts rise by 1% (just under £3 billion) and GDP up to 1% (£18 billion). It could also help to reduce the welfare bill, with £7 billion a year currently being spent on benefits for people aged 50 to state pension age who are out of work. Furthermore, enabling people to work for longer will give them more time to build up vital savings for retirement.
The net effect of these measures would be to reduce pressure on public finances brought about by people living longer, including increased spending on the state pension and health and adult social care.
According to new research by consultancy firm Mercer it is anticipated that Britain’s available workforce will increase by just 2.4% in 2025, down from a 9% rise in the 10 years prior to 2015. This will be the first time in half a century that the overall population increases faster than the workforce, which is expected to create long-term structural challenges for the economy. The predicted slower rate of growth is the result of falling net migration caused by Brexit, combined with an ageing population. The projections suggest that there will be 300,000 fewer workers under the age of 30 over the next eight years, whilst there will be one million more workers aged over 50 as a result of falling net migration and ageing baby-boomers. This is expected to have a particular impact in London where the economy is heavily dependent on young and migrant labour, with the capital’s under 30 population set fall by a quarter.
In order to fill the gap that this may create, companies will need to think both urgently and creatively about how to attract a more diverse group of people, including the over 50s and parental leave returners in order to tap into a wider talent pool. However, stereotypes and assumptions about young people and mature workers can have a negative influence on decisions in the workplace. Frequently, older workers and older job applicants are perceived as lethargic, expensive and behind the times. Fortunately, that’s not the case for all companies. Some best-in-class employers understand the value, wisdom, and insight older workers can bring to the workforce. The answer lies in realising that diversity and inclusion practices and policies are needed not just because it’s the right thing to do.
The legal position
Employment legislation ensures employers cannot dismiss older workers on grounds of age and aims to encourage workers to remain in the labour market. The Equality Act 2010 makes it unlawful to discriminate against employees, job seekers and trainees because of age. The Act says there are no upper age limits on unfair dismissal and redundancy.
ACAS advises that employers should ensure they have policies in place which are designed to prevent age discrimination in the following areas:
- recruitment
- determining pay, and terms and conditions of employment
- training and development
- selection for promotion
- discipline and grievances
- countering bullying and harassment
Any business owner who has not fully explored these topics with employment law solicitors runs the risk of an older employee being able to bring an unfair dismissal claim related to age discrimination in the Employment Tribunal, and having to pay substantial compensation.
Early retirement is losing its appeal
A recent study by Aviva found almost two thirds of over-50s in work, 6.4 million people, were planning to retire later than they expected to 10 years ago. Three factors strongly affect rates of early withdrawal from the labour market: wealth, health and caring duties. For all but the wealthiest, falling annuity rates, the closure of generous defined benefit pension schemes and planned pension reforms will provide strong financial reasons against early retirement. Research has shown that around 40% of those over 50 are extending their working lives due to rising living costs or because they did not have sufficient pension savings.
Historically, early retirement has been used partly to create space in the labour supply for younger workers, particularly in times of recession. Such strategies assume a fixed amount of work is available within an economy. In fact, at the macroeconomic level, there is a positive correlation between older workers’ labour market participation and employment rates for younger generations. Furthermore, early retirement leads to onerous pension costs and a potential skills gap in the workforce. Some countries, including Finland and Germany, actively support the retention of older workers as a means to avoid anticipated skills shortages.
Britain’s booming jobs market has been a recent source of pride for the government, with more people in work than at any time since 1971. However, a report by PWC, the accountancy firm, has revealed that its employment rate for those over the age of 55 is woeful compared with the international average. The report estimated that underusing older workers could be costing the UK economy nearly £200 billion a year. In other countries such as New Zealand flexible working patterns allow older workers to take part-time jobs and a policy of benefits for older people also discourages early withdrawal from the workforce and rewards those who work beyond the age at which they are eligible for pensions.
Given that the UK state pension age is set to rise to 68 by 2037 as people live longer, it really is time for UK employers to get age-smart.
Fitchett & Co, Employment Law Specialists, are able to offer employment law advice and support to UK employers who have been affected by any of these issues. Call 01483 243 587.
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