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Demise of the default retirement age - the implications

 

Demise of the default retirement age – the implications
by Tony Clack, Managing Director of Retirement Specialists, Laterlife Learning

The coalition government announced plans at the end of June to drop the default retirement age (DRA). This change represents a huge discontinuity in what we all understand by retirement and has benefits and risks for us as individuals, for organisations and for society. However there is a danger of unforeseen consequences. These consequences will be determined largely by how organisations react to the change, which in turn will be set by the constraints and environment created by Government.

The announcement of the very rapid implementation timescales this week add to those dangers. Employers will not be able to use the DRA to compulsorily retire employees from 1st October 2011. This means they will not be able to issue compulsory retirement notifications from April 6th 2011 (because of the 6 month period required).

This article, written prior to the announcement, briefly examines the pros and cons for individuals, organisations and society and highlights the risks and opportunities. A subset of this article was published in Guardian Online http://www.guardian.co.uk/commentisfree/
2010/jul/19/retirement-age-talk-crucial a week before the latest timescale announcements.

The Individual

On the face of it this change has advantages for us all as individuals: more control over when we want to retire, less likelihood of being forced out on irrelevant age grounds, more control of work/life balance if employers also introduce flexible working policies.

On the downside there are some pitfalls. At Laterlife Learning we see the whole range of retirees on our pre-retirement workshops; from those who can’t wait for retirement to those who are really worried because they don’t know how they will spend their time. The danger for those who can’t immediately see the benefits, or aren’t natural planners, is that they will cling on to work or adopt an ‘it’s easier to do nothing’ approach and miss the opportunity that retirement presents.

However many of the potential negatives or positives depend on the reaction to this change within organisations.

The organisation

There is no doubt that the removal of the default retirement age will have a huge impact on organisations. Some organisations have already embraced this change but many haven’t. How organisations react in both short and long term will depend very much on the climate and incentives created around this change by Government to help transition.
As for the individual there are positive and negative aspects of the change but for organisations it requires much more action to make sure it is a positive and not a negative. Probably the single biggest consideration is financial. What will this mean to an organisation if it no longer has the safety valve of being able to let a proportion of staff go with no redundancy costs?

However on the positive side, this change automatically ensures that organisations will have to focus on getting rid of the least effective staff not the oldest and putting more emphasis on ability measures and proper performance management.

If organisations also adopt a flexible working approach i.e. the ability to gradually cut down from 5 days to 4 days to 3 days etc. over a period of years, so people can adopt portfolio lifestyles, then it will enable them to retain access to key skills more easily, and they won’t see knowledge walk out of the door in quite the same way as it happens now. However, managing flexible working does add to the management challenge.

Assuming the removal of default retirement age does result in an overall increase in people working longer, then organisations may have a succession problem e.g. less opportunity for younger managers, causing an outflow of talent.

It is well known that in most organisations little dialogue currently goes on about retirement until the time is close and that younger managers are ill equipped to understand the issues for someone facing retirement. Organisations will now need to ensure that dialogue about retirement goes on throughout an individuals career so that it is an accepted topic for discussion and that raising the topic is not seen by one or other as an indication that the organisation wants to get rid of them or that they are ready for retirement. So managing older workers will need to become a core skill, with more help given to help decide when to retire.

However in all this the more hidden potential problems relate to how older and younger workers are viewed in an organisation. Is there subtle age discrimination and are stereotypical views of young and old held, or does the organisation have a sound factual basis for managing. These will manifest themselves in the impact on society which we address next.

Society

At first sight society as a whole should benefit from this change: it is likely to lead overall to people working longer, hence keeping skills in the economy, reducing the need for immigration despite the changing age demographic. In addition if flexible working approaches are adopted we are likely to see a rise in overall life satisfaction.

However the potential downsides if we don’t get it right and if organisations react the wrong way are substantial. If there is covert age discrimination and age stereotypes aren’t overturned, then rather than encouraging older workers to continue for longer we could see the reverse with organisations finding ways to shed workers before they get ‘too old’ and being less likely to recruit older workers because of perceived cost, performance and health issues and the subsequent difficulty of agreeing their exit. This might also lead to far more ‘contract jobs for fixed terms’ rather than continuous employment. We might also see higher unemployment costs rather than pension costs.

Conversely we could see higher rates of youth unemployment, especially in difficult times, because younger workers would now be cheaper to make redundant.

We could also see actual and perceived inequalities increase e.g. with only the well off, higher income professionals able to retire early, or cut down early, while others have to soldier on.

Conclusion

Our view is that this change can be enormously beneficial all round but only if the right environment is created within organisations. We think flexible working, enabling portfolio lifestyles, is key to success. The most important thing is that the potential issues and implications outlined are widely debated and the implementation and transition process is actively managed to achieve the beneficial results we can then all share in.
 

 


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