There is little doubt that as longevity increases and as the strain on the state increases, more people may have to work further into old age.
This was illustrated last month when pensions minister Steve Webb called for the swift end of the default retirement age. Speaking at the International Longevity Centre, Webb said: “The first thing we want to get rid of is the default retirement age which is an anomaly. It will be vigorously phased out and while that also depends on my colleagues at the business department, they have been very keen to get on with the job.”
The new coalition hopes that this, along with the recent decision to scrap forced annuitisation, will mean that people have the means to work longer and save more for their retirement.
But is it as simple that? As Dr Craig Berry, a senior researcher for the ILC, says in his recent report, The Future of Retirement: “To retire means to stop working. Yet this conventional definition hides significant discrepancies. The line between employment and retirement is often blurred.
“While increased longevity surely changes the context of retirement decisions, clearly, it does not have a determining impact.”
So, will more people work longer in the future? Will they be forced to do so? Or will the new flexibilities being introduced by the coalition Government change people’s opinion about retirement?
Berry says there are several indicators which suggest that people may want to or may be forced to work for longer.
He says the emergence of defined-contribution schemes as the dominant retirement savings vehicle is a major contributor. “DC pensions incentivise working later into life to increase the pot available to purchase the annuity. More cynically, the fact that DC schemes tend to be less generous may mean that people are more compelled to work for longer.”
He also thinks this may be even more salient an issue for women, who have been working less. He says: “While women are becoming more equal to men in employment, this is happening at precisely the time that generous definedbenefit pension entitlements are being withdrawn.”
But it may be that people simply want to work longer either due to financial demands or because they enjoy their job. Berry says as a result it might be that companies recognise this by offering flexible or gradual retirement options similar to those found in Japan. He says employers of the future may move older employees to less strenuous departments, offer them a shorter working week or allow them to tele-commute. All this he says could contribute to an extended working life.
’The default retire-ment age will be vigorously phased out and while that also depends on my colleagues at the business department, they have been very keen to get on with the job’
Berry says: “Given the onset of new forms of employer for older people the cessation of one career is not necessarily the end of a working life.”
But scrapping the default retirement age may only unlock increased flexibilities for certain professions. Data from the Office of National Statistics in Q2 2009 found that while the majority of people retired within two years of the state pension age, the ages were spread from the early fifties right up to 75. Berry says: “In practice, extending working lives depends on the availability of appropriate jobs,” says Berry.
“The removal of the default retirement age removes an important barrier to extending working lives, yet none of this guarantees that demand for older workers exists or that older workers have the skill set to meet real labour demand.”
As well as employment availability, people will live longer in the future and that also means there will be more need for long-term care. The Personal Social Services Research Unit says the number of people dependant on care will almost double from 2.1 million in 2001 to four million by 2030. It predicts this increase will demand nine million carers in the UK, many of who will be people of retirement age.
Of course, having the ability to work longer may not necessarily entice people who have already worked for 40 years or more. “Paradoxically, it could be that an aging society contributes to earlier retirements by legitimising the idea of a sustained period of leisure in later life,” says Berry.
Ultimately, the report admits that simply increasing or scrapping the state pension age will do little to make people work longer. “Retirees will ultimately make their decision based on a wide range of complex factors,” Berry says.
The ILC study comes to the conclusion that the solution to longevity and retirement comes from not just scrapping the default retirement age but also through simplifying the pensions process, offering workers more flexibility around retiring and taking a pension and making sure employees are happier and healthier in their jobs.
Berry says: “The meaning of retirement was originally bound up with the receipt of a pension but that has changed over time. While we need to encourage more people to work for longer, for some people, the decision to work for longer is a financial necessity and may be detrimental to their well-being. We need to explore how to institute sustainable retirement practices that benefit both individuals and society or the economy more generally.”