A third of workers in the UK will be over 50 by 2020. The changing age profile of the workforce will be the most significant development over the next decade. Employers will be expected to respond to this demographic shift by making work more attractive and feasible for older workers, enabling them to work up to and beyond State Pension Age (SPA). This POSTnote examines the main challenges to the participation and productivity of older people in the workforce.
Within 20 years, nearly a quarter of the UK population will be aged 65 or over. Compared to 1970s, people are now spending an average of 7 years longer in retirement, but it is unclear whether these 7 years will be healthy. With the current 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 reduce this pressure would be to encourage workers to delay retirement and remain in the labour market for longer.
In addition to macroeconomic necessity, working later in life will also be of financial necessity for individuals. According to statistics, average earners in the UK receive less than 40% of their pre-retirement income from state sources as pensioners. The Equality and Human Rights Commission has voiced their concerns that rates of pensioner poverty will rise substantially in the future. This problem may worsen in the future if greater participation in higher education limits the years of potential pension contributions from younger generations.
C. The Trend of Early Retirement
Historically it was assumed that a fixed amount of work was available within an economy. Hence, early retirement has been used partly to create space in the labour supply for younger workers, particularly in times of recession. Nevertheless, at macroeconomic level, there is a positive correlation between older workers’ labour market participation and employment rates for younger generations. Additionally, early retirement heads to onerous pension costs and a potential skills gap in the workforce. Finland and Germany actively support the retention of older workers as a means to avoid anticipated skills shortages.
The current UK governments have encouraged people to stay in the labour market into later life and at the same time are now introducing further reforms to UK employment and pension law. It is estimated that extending working lives by one year could raise real GDP by around one percent, via tax revenues and reduced pension spending.
It is believed that jobs that are safe and allow workers a degree of control in their workplace environment are good for health, while long-term unemployment has a detrimental impact on both mental and physical wellbeing. Staying in work can maintain cognitive and physical activity, provide a sense of identity and access to social support, and create intrinsic benefits of feeling productive and valued. There are also indirect economic benefits through limiting health and social care costs. However, establishing extensive correlations between health benefits and working later in life is difficult, given the wide range of job types and working conditions in the labour market.
D. Recent Employment Trends in the UK
In the last 15 years labour market participation for the 50-64 age group has increased and it is particularly evident among women. Also, the percentage of workers aged 65 and over has doubled in the last decade. This potentially marks a reversal of the trend towards early retirement observed in the last quarter of the 20th century. Average retirement ages have steadily increased over the past decade and are currently 64.5 years for men and 62 years for women. This is high by European standards.
E. Choice in Exiting the Labour Market
There are three factors strongly affecting 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.
Even though around 60% of older workers remain fit, healthy and keen to work, the major causes of economic inactivity in the age group 50-SPA are ill health or disability, primarily among men and low earners. Nearly half (47.4%) of incapacity benefit claimants are in this age range.
Caring responsibilities are a major cause of early exit from the labour market, especially for women. Around half of the six million carers in the UK are aged 50 to 64. They will increasingly be responsible for the informal care of elderly relatives and are also a significant childcare resource. This may severely constrain their potential to continue working.
F. Challenges to Working Later into Life
The combination of an increasing average age of the UK workforce and the need for workers to stay in employment later into life will raise key challenges both for employers and for prospective older workers. Legislative changes and financial incentives alone will not increase participation rates of older workers if there are barriers to good employment opportunities and access to support to stay in work.
Attitudes of Employers
Many employers value their older workers: positive aspects attributed to them include a strong work ethic, reliability, loyalty, business experience, institutional memory and specialised skills. However, many negative stereotypes about older workers endure. Common perceptions include that they are less productive than young workers, slower, less adaptable to technological changes, less cognitively capable and motivated, resistant to management, and prone to ill health. Age discrimination based on these perceptions is common and it also influences workers’ self-perceptions, harming confidence in their capabilities and value.
In addition, a robust perception is that older workers are more expensive than younger recruits, but this is only true in some professional roles. Average wages peak in the late 30s (women) or 40s (men), and decline thereafter.
Barriers to Recruitment
While many employers value their existing older workers, recruiting unemployed over 50s back into the workforce remains a significant challenge. Part of the challenge lies in jobseekers, who discourage themselves by thinking that employers value formal qualifications or accredited training at the expense of experience accumulated throughout the time. Opportunities are also closed-off to well-qualified older workers when companies recruit internally for senior positions.
Attitudes and perceptions constitute largely recruitment barriers for older jobseekers. This is now changing slowly following the outlawing of age-based recruitment practices. In the UK, 44% of employers claim to be attempting to recruit older workers, but conclusions about the effectiveness cannot yet be drawn.
Increasing Training Opportunities
Training plays a key role in extending working lives. However, there is a sharp decrease in participation in training once workers reach their mid-50s. While employers believe that they will not get a good return on their investment in training for older workers, older workers’ willingness to undertake training depends on its perceived usefulness, cost, time commitment and method of delivery, as well as their level of self-confidence for acquiring new skills. The “Train to Gain” initiative encouraged employers to provide job-specific training, with half the cost taken on by the government. It attracted a high number of older workers, suggesting that there is an appetite for training but that costs may ordinarily be a barrier.
If people are expecting to work longer and if employers and workers recognise the need to maintain skills and employability later into life, the availability of training opportunities and rates of uptake should increase. Relevant training includes broadening career horizons, life course and retirement planning, job succession, mentoring, and skills transfer to younger workers.
Challenges to Improving Employability
It takes longer for older jobseekers to find employment than other age groups and a disproportionately large number slide into retirement involuntarily. If redundancy occurs, lack of self-confidence and mental health issues associated with unemployment are major obstacles to finding new work.
Self employment may not be a viable option considered by older people, but almost 18% of working over-50s are self-employed, rising to nearly 30% for men nearing retirement age. Business survival rates among such old age group are better than start-ups by younger people. Moreover, self-employment provides some scope for greater choice about working conditions and hours.
Adapting Job Design for Older Workers
The UK labour market is changing, with a trend towards roles that are not necessarily bound to specific hours and locations. Such change fits into the work conditions required by older workers. Recent innovations in flexible working include remote working; annualised hours; flexitime; job-sharing; phasing retirement; and pension draw-down.
Future working environment must adapt to the changing age demographics of the workforce. Some see flexible working practices as part of broader employment policies geared towards improving access and conditions for older workers. Small and medium enterprises often operate flexibly on a case-by-case basis, benefiting from retaining valuable staff and reducing turnover costs. Flexibility can increase job satisfaction, reduce absenteeism and strengthen the psychological contract of trust and loyalty between employer and worker.
Although three in four employers claim to offer flexible working options, flexibility means different things across the income scale. At the upper end, skilled professionals may have a high degree of choice and control over their hours, while at the lower end, flexibility means low paid and low skilled work with little control over conditions. There is little evidence on whether the options for flexibility offered are suitable for employees in practice.
The Department for Business, Innovation and Skills began a consultation in May 2011 on extending the right to request flexible working to all employees. Employers are not obliged to accommodate requests if there are business grounds for refusing. However, such a right could shape thinking about the routine and requirements of work across the workforce.
The Role of Workplace Design
Both the physical and social environments are important for workers’ productivity and wellbeing. Workplace modifications can compensate for many changes and impairments associated with age. For example, ergonomic computer equipment and desks with adjustable heights to allow periods of work standing up can reduce musculoskeletal pain. Locally-controllable lighting enables more comfortable reading, aiding concentration.
The government’s Work Capability Assessment is intended to reflect the fact that, with appropriate support in place, illness need not be a barrier to working. However, the working environment can have a major effect on workers’ health and productivity. Men in their 50s in unskilled or manual jobs suffer health problems that are not usually found in their counterpart with the same age in professional roles. Improved understanding of the interaction between health status and the working environment may help to reduce rates of early retirement due to ill health. Apart from the physical environment, psychological and social aspects are also important to employees’ health. For example, low social support and job satisfaction are risk factors for illness absence due to back pain.
Promoting the health and wellbeing of their workforce is in employers’ interests. Initiatives such as stress audits show a good return on investment, reducing sickness absence, staff turnover and “presenteeism”, and improving morale. In the longer term they may also reduce the likelihood of early retirement due to ill health.
G. Policies to Support Older People in Work
Targeting employment policies on a specific age group risks perpetuating age stereotypes. Non-discriminatory policies that may nonetheless benefit older workers could focus on:
• The creation of age-diverse workforces;
• A culture in which future plans are discussed throughout working life, not just at retirement;
• Acknowledgment of the importance of training and transferable skills for employability;
• Embedding of flexibility in job design as a norm.
In companies where employees over 50 form a high proportion of the workforce, attitudes towards older workers generally are more positive. This suggests that as the presence of older workers is normalised, their value and productivity will be more positively appraised by employers and other workers alike.
• As life expectancies in the UK increase, people will face lengthy periods of retirement with proportionally less pension provision, unless they stay economically active for longer;
• Recent UK-wide legislation ensures employers cannot dismiss older workers on ground of age and aims to encourage workers to remain in the labour market;
• There may be health and social benefits associated with staying active through work, provided that working conditions are not in themselves a cause of ill health;
• Older people who wish to remain in employment often face practical, cultural, organisational and psychological barriers to finding and staying in work;
• Policies to extend working lives will require changes to working practices, job design and cultural attitudes if they are to succeed.