The whole landscape around when and how to retire has changed and this change is accelerating, driven in part by an ageing population and a projected drop in the number of people deemed to be of traditional working age.
British businesses could face a shortage of up to three million workers in the next decade unless they adequately support older workers, according to Aviva’s November 2019 analysis of Office for National Statistics data.
Despite an estimated seven million new workers entering the jobs market, another 10 million could exit due to retirement and a reduction in employment participation from older workers.
Hiring is already one of the highest costs any company faces – between £22,000 and £30,000 depending upon size according to The Cost of Brain Drain report by Oxford Economics published in 2014.
Many firms will find themselves on the back foot, scrambling to hire, facing wage inflation and struggling to meet business needs – unless they accept older people within the workforce and prepare their staff for the transition into retirement.
It is not just employers who are worried. In a post-final salary pensions world, retirement is the number one worry for employees.
An Association of Investment Companies survey of 2,011 British people aged between 35 to 55 with a minimum household income of £50,000 found that half (49%) said not having enough money for retirement was their biggest concern.
The money-related stress employees are suffering directly affects the bottom line for British businesses.
Money worries
Research by Close Brothers Asset Management in January 2019 found that almost all (94%) of UK employees have money worries, with 77% saying it affects them at work.
This survey was of 1,003 employers with 200 or more employees, and 5,003 employees from companies with 200 or more employees.
Meanwhile, employers reported higher absences (19%) as a result, not to mention reduced productivity (22%).
Instead of accepting staff suffering in silence and worrying about how their future retirement decisions will affect the business, employers must act so that they can save on recruitment costs and increase both staff productivity and loyalty.
But due to understandably tight legislation, employers cannot ask an employee when they intend to retire.
This is a hugely sensitive area, so they need to create an atmosphere where employees feel relaxed about reaching out to them to initiate a conversation.
Offering pensions advice to staff empowers them to make better choices and not only reduces their financial anxiety but also opens a dialogue, allowing the employer to plan properly and avoid those huge hiring costs.
Employers must also raise awareness of the pensions advice allowance launched by the government in 2017. This can save employees up to £310 on fees each year depending on their rate of income tax, permitting employers to fund or reimburse the first £500 per year of advice for each employee as a tax-exempt benefit through a salary sacrifice arrangement.
Any employee should feel free to say: 'I’d like to start reducing my workload, how does that work for you? Can we do that?'. This is far preferable to suddenly declaring that they are resigning and leaving the workforce altogether.
Phased retirement
People no longer have to go straight from working a 40-hour week to zero – and they often cannot afford to do so. Instead, they can dial it down gradually.
This is known as phased retirement, which was previously considered the preserve of wealthy and self-employed people who enjoyed the privilege of managing their own hours.
But ordinary people across multiple sectors are now considering this as a viable approach. This is a highly welcome and much-needed development.
They are now contemplating working full time all the way up to the age of 70, then phasing their work commitment for several further years.
Although phased retirement is about working fewer hours, it does not have to mean doing less of what you did before. It could mean doing more of something else instead.
An experienced factory floor manager working five days per week could, for example, become a project manager working two days per week.
Unlocking the perception of value in employer pension provision could be the key to reducing staff anxiety, increasing loyalty and, crucially, saving a fortune in recruitment costs.
Sheetal Dhanuka is co-founder of AdviceBridge.
