Unlocking retirement choice
Feb 9, 2015 | BLOG
By: Andrew Rear
In my last post I argued that the key to avoiding inter-generational conflict over retirement is making it possible for people to decide for themselves how and when they exit the labour market. Only that way will we accept that we cannot sustain the work:retirement balance that we have come to expect during the last generation. That our expectations have become unsustainable is clear, as is the fact that the situation is only partially down to longer life expectancy. That said, I am troubled by the suggestion of some commentators that this is somehow the ‘fault’ of the baby boomers, as opposed to the sort of overshoot that we see in everything that relies on long-term projections.
I see three necessary elements to delivering retirement choice: the right savings vehicles and incentives; information and advice; and the opportunity to work later in life. On the first of these, I believe we have got the framework more or less right. Ten years after the Pensions Commission, I think we can say that we at most need to review and adjust, not radically rethink.
On information and advice, we remain in a muddle. We have an advice process whose regulatory demands make it unaffordable for many people, and a supplementary system of information, guidance, and other words that people take to mean advice but which are not “advice”. The “guidance guarantee” accompanying the annuity reforms are a case in point. My thesaurus tells me that “guidance guarantee” means “warrantied advice”; it will be interesting to see who provides the warranty when things turned out badly for people who received this guidance and followed it as far as they understood or were able.
That said, working later is the biggest challenge, and the one that will ultimately determine the success of the Pensions Commission and our whole system of retirement provision. I think there are three questions we need to answer. First, is there any economic or employment implication of people staying in work longer, and if so how do we manage that. Second, how do we encourage and support employers and employees to make later working a natural and attractive option for most people. Third, how do we through the pension, tax and benefit system enable people to exercise choice in exiting the labour market smoothly as a health or lifestyle choice.
The studies around later working are somewhat contradictory. Some emphasise the need for employers to be more flexible to accommodate older workers, and point out the difficulty this causes business in a competitive market where they too need to be flexible. But other studies appear to show that older workers boost overall productivity. According to one study, McDonalds franchises with at least one worker over 60 are 20% more productive than those without.
Whatever is the truth about the cost or value of older workers, the numbers are show a grim truth. In the UK, labour force participation of men between 55 and 64 was much higher in the 1970s than it is today, and that of women has hardly changed. Though participation has risen in the last couple of years, the overall trend is not encouraging: during a period of continuous increase in life expectancy, we have been retiring earlier, not later. Many of those who do remain in employment tend to work a lot less than full-time, and they come overwhelmingly from higher socioeconomic groups. Worst of all, US data shows that a break in employment in your 50s often effectively means the end of your working life: not only does it take longer for a 50+ to find a new job, they also have to settle for earning a 36% lower wage, compared to those aged 25-50 who on average find new employment within 5% of their previous wage.
To state the obvious: later working needs to be a choice for almost everyone, in all sectors, all socioeconomic groups, and all regions of the UK. If later working is just a leisure activity for the few, we are not going to be able to rely on it as a plank of a soft landing for retirement expectations.
I was delighted when the Government appointed Ros Altmann as business champion for older workers, and I hope we can build on this momentum. This issue is complex and inter-connected but one that we need to get right first time. We need to create a positive environment in which working later becomes normal for most people, encouraged by policies which support both worker and employer. None of us – neither employers, Government, researchers nor older workers themselves – have the answers. We need to engage, reflect and experiment together in a systemic inquiry out of which those answers can emerge. I hope very much that this Government and the next have the foresight to see that changing society takes more than a framework and some targets.
Chief Executive, Africa, Asia Pacific, UK & Ireland Life, Munich Re
Andrew Rear spoke at the ILC-UK event Europe’s Ageing Demography, at the European Economic and Social Committee in Brussels, on the 5th November 2014. This is the second in a series of guest blogs by Andrew which will expand upon the key issues he raised in Brussels