Why removing the default retirement age brings economic benefits
Simon North, March 29, 2011
There are many positive aspects to removing the default retirement age (DRA) and money is one. For individuals, it’s about being able to sustain and build higher living standards as they get older; it’s about managing their pension and being able to control their income options. For businesses, it’s about harnessing the talents of older workers, who have cost benefits and advantages such as skills retention and less training and recruitment and loss of knowledge.
For employees, the removal of the DRA means greater choice. No longer will a person be required to retire at the default age of 65. Instead they will have the option to work on and on with no definite end period. The primary economic benefit is being able to sustain being an economic worker - earning and paying taxes. The individual can retain earning their income and taking benefits from their employer, although these benefits are likely to change over time and there is the opportunity to continue contributing to their pension fund, if they are in one, and benefit from any tax efficient opportunities that may also exist in the future. By not drawing their state pension, they can also take advantage of drawing it down later and at an enhanced rate.
With this choice on offer, many mature employees have the opportunity to gain greater control of their working life. Hopefully they can also take advantage of flexibility from their employer. Where possible, they might work from home as well as in their normal office space, thus reducing the amount of travelling and travel cost associated with coming in every day. Where people can take advantage of this option, there's also a personal saving around the energy expended at this time of life and the ease at which they can do their job. Ease is important to older workers as it enables them to put in a more effective performance and to be more reliable in their contribution. If they are able to undertake their work in a different and effective way, there will be additional savings related to their working life - the amount of food they need to purchase, normal wear and tear in using their car or any other components of working on a normal basis.
What will be difficult to quantify will be the change in energy created by this flexibility and also the mood of the older worker. If they are allowed to choose the type of work they continue to do and the hours they actually work each week or month, there will be a shift in their capacity to fulfil this new contract with their employer. This will almost certainly impact not only their performance but also other key issues such as absenteeism. If these measures go the right way, they both impact on cost and profitability of the organisation or the employee themselves.
Workers who have had the opportunity to reposition themselves in the workplace and are happy and content with the amount of economic work that they are doing will also put less strain on our medical services. Being able to continue working in a way that is better aligned to our health, mentally, psychologically and emotionally, should see a reduction in the need by this part of the working population for GPs and subsequent specialist health services. These potential savings, together with the continued economic contribution through paying tax, mean a healthier exchequer for UK plc.
For companies, retaining critical skills is, and will continue to be, an important issue. There will be some employees whose skills and experience are difficult, if not impossible, to replace and whilst it is tough to analyse and put a cost on them, there will be a risk to organisations of not being able to replace these key workers. Where no deal can be done with a key older worker, an enterprise may seek to recruit but it always runs the risk of getting its recruitment process wrong. When that happens and they look at the person that they let go, they may well see an economic lost opportunity. If they do hire someone, they then have the cost of inducting and training this person up to the level of the person they have lost. It is possible that that process of encouraging somebody to the previous person's level of knowledge and competence will take a lifetime and still never be achieved.
Where organisations have blockers in key roles within their structure, the cost of not addressing these people can be high also. Somebody who is a blocker may not be all bad, but the cost of losing other talented colleagues who feel that there is no way through, can be significant and unacceptable to the company. How one then repositions the blocker so that they and the business can continue their working contract is going to be a challenge. The risk losing knowledge is key and the opportunity for the transfer of knowledge is available. Smart organisations have been utilising knowledge transfer and mentoring schemes in recent time
Removing the DRA will bring potential benefits to the individual older worker, to the employer and to the State. The fundamental issue underpinning this potential is the employer's desire to be flexible in accommodating their employee and allowing them to contribute in a way that recognises their unique and very personal situation.
Simon North, co-founder of Position Ignition for Organisations, which manages mid-career professionals through to retirement.