• What would a new state retirement age mean for employers?

  • 3 Mar 2016
  • Comments 3 comments

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 most employees 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 age beyond 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."

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Comments (3)
  • It is very difficult to generalise about when people will choose to retire, if they have a choice at all and much often depends on what pension provisions they have other than state pension. The demanding nature of some jobs will make it impossible for some people to work into their 70's unless there are significant advances in the state of physical health at that age. Whilst statistaically life expectancy may have increased overall I see little evidence of it locally. the That being the case, what is the objective of raising the state pension age above 70? It is surely to ensure the Government has a state pension burden for the shortest possible time after people retire. To make sure that people 'enjoy' retirement for the shortest possible time before they die. Cynical yes but I fear nevertheless true. As a previous comment implied, is this really the legacy we want to leaveour children and grandchildren? My son is a police man and I don't belive he, or the public at large will be keen to see hime working on into his seventies.

  • From my understanding the problems with securing sustainable pensions are down to my baby boomer generation. I am at the tail end of that generation, so I believe from 2043 onwards we should be reducing the pension age. .

    I doubt very much whether average life expectancy for my generation will go much above 90. As I have an enjoyable but desk bound job, I never thought I'd want to retire, ever. What one doesn't realise is that as a person gets older there are more responsibilities to take on and this saps energy. Also even a fit older person begins to accumulate small, but tiring physical problems.

    I hate to think of my kids having to work until their mid 70s (and both their grandfathers failed to live past that landmark). We should not be pulling up the ladder after us. Past generations made things better for us and we must be the most selfish generation ever not to do the same for our children

  • I smile when I see these statements of 'the retirement age will be 70'. They must have been made by 30-40 year olds that really don't appreciate what 70 is being like and what a 70 year old can do, ie even their parents are not that age. I appreciate I know a few that do a few working hours, even a few that run, more that cycle and even one that dives but a few hours of a hobby at a gentle pace is not a day (or even a half day) at work.

    I work with many different organisations in my role and most really struggle with 'older' people, their needs, different approaches etc.. I am not talking about the 60-70s here, I'm thinking of the 55 ish!

    I also appreciate with the current state of pensions many will need to try to continue to work much longer. Though I doubt many of those making the original comment will working to these proposed ages.

    These indeed will be interesting times.