What would a new state retirement age mean for employers?
Average age of leaving the workforce may reach 70-plus, experts predict, with implications for skills, training and pension costs
The burden on employers to help their staff adequately fund their retirement is going to become ever greater, with the state pension likely to increase to 70 and beyond in future years, experts have warned.
With a report by the Pensions Institute at Cass Business School this week suggesting that mostemployees need to double their average pensions contributions to 15 per cent to attain a comfortable retirement – and the announcement of an official review into the state retirement agebeyond 2028 – employers’ concerns about the nature of the ageing workforce, and the future of pensions provision, are likely to be front of mind.
The current state pension age is 65 for men and 60 for women, which is due to rise to 66 for both by 2020 and reach 67 between 2026 and 2028. A governmental review, however, has led to speculation it could push into the 70s within a generation, with profound implications for the nature of the workforce.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “We have already moved away from compulsory retirement in the workplace, and increasingly we are moving towards flexible and later retirement. We are likely to see the state pension age going up further. A retirement age of 70 for some people will increasingly make sense.”
Chris Noon, partner at Hymans Robertson, said that increasing retirement ages would impact career progression in the workplace. “Fundamentally, there are going to be a large number of people who are not going to be retiring at the ages HR directors and employers may have historically seen,” he said. “The average age of people retiring from the workforce is currently around 58. Over the next 10, 20 or 30 years, it is going to move from 58 to probably mid- to late-60s, maybe even later.
“People are not going to get promoted at the pace their predecessors did and they are going to get frustrated. In the medium term, it is going to cause a blockage where people are unable to progress and the danger is that your best people then leave.”
Chris Brooks, policy manager at Age UK, said businesses should aim to see the positives in an ageing workforce: “It is an opportunity and a challenge. It is a chance to increase productivity and realise the benefits that [older people] can bring.
“HR departments are going to need to be better adept at meeting the needs of their older workers. They also need to think about skills and training and better using the existing skills of their workers. We know that a lot of older workers like to pass on their knowledge, so with people staying in the workforce for longer there is an opportunity for mentoring the younger generations in the workplace.”
The cost of funding retirees’ incomes will increasingly fall on employers, McPhail predicts: “Auto-enrolment has a minimum contribution employer rate of three per cent from 2018 onwards. That is barely enough. At some point in this Parliament or next, we would expect the Government to be asking employers to start ratcheting up their contributions.
“We are going to need to get into double figures – we need to get to a point where a pension funding rate of 12 per cent is a widely accepted minimum. Until we get there, employers should factor increased pension costs in the future.”
Story via – http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/03/03/what-would-a-new-state-retirement-age-mean-for-employers.aspx