Is 75 the new 65? How an ageing workforce will affect your business
- A rising State Pension age means that workplaces will get older.
- 43% of HR directors predict a rise in demand for benefits.
- Protection insurance premiums may rise, but older employees also bring many advantages.
Until recently there was at least one constant in the ever-evolving workplace. Whether employees liked it or not, as soon as men hit 65 and women hit 60, retirement not only beckoned, it was enforceable. It may have been harsh, but HR directors could plan their future recruitment and workforce needs, while no employee could ever say they didn’t know their working life was ending.
Since 2011 though, it’s been all change. Default retirement ages have gone, and the State Pension age is rising (to 66 for all by 2020). Between 2010 and 2013, half of the total increase in employment came from the 65+ bracket, and the number of people in this age bracket is forecast to increase by 278,000 per year between now and 2037 – four times faster than those aged 15-64.
The government has effectively ensured that workplaces will get older. But what policymakers – and HR professionals – may not have considered is the impact this is likely to have on firms’ benefits provisions, an impact which recent research from Towers Watson, in association with the Economist Intelligence Unit, argues could be significant.
Wising up to older employees
In their recently published survey Is 75 the new 65? the report’s authors find HR directors fear they’ll have to drastically reconsider their health benefits. Some 43% predict more older employees will create a greater demand for benefits overall, with 43% also saying they expect greater demand for healthcare and retirement provision. Around half think they’ll have to change the type of benefits they offer, with many expecting these to come in the form of higher costs.
Certainly, firms will have to put their thinking caps on. As John Ball, head of pensions at Towers Watson, says: “An ageing workforce will create challenges for employers, especially around how to control the cost of benefit provision.”
Just one of these issues will be rising premiums. Protection insurance premiums are typically based on the average age of a company’s workforce. Having much larger numbers of 65+ staff can easily bump up a firm’s average age by a few years. Given that for every one year the organisation’s age increases, premiums can go up by 7-10%, this is hugely significant. Already, companies like 15,000-strong Philips is seeing the impact of an older workforce. Its company average age has risen from 41 to 44.3 in the last ten years; some 32% of staff are already over the age of 50.
“Employers will have to think hard about whether they want to be seen as not giving this valued benefit to staff, just because they’ve passed what would be their normal retirement age.”John Dean, MD of Punter Southall Health and Protection
Tackling income protection
Because one particular benefit, group income protection, was designed to assume a final age of 65, it has been allowed to be exempt from default retirement age changes – meaning it can currently be halted once staff hit 65 (and only has to be paid up to State Pension age).
However, according to John Dean, MD of Punter Southall Health and Protection: “Employers will have to think hard about whether they want to be seen as not giving this valued benefit to staff, just because they’ve passed what would be their normal retirement age.” He adds: “This would be a particular concern if the employer particularly wants to be seen as a company that embraces older workers.”
To solve this, firms may have to consider communicating more of a shared costs approach – perhaps buying a basic income protection policy for all, which older members can then choose to bolster from their own pocket. Limited term policies, which restrict income protection payments to a fixed period – typically five years – instead of until intended retirement age, are also a consideration.
The main fear from the report is that insurance premiums (such as private medical insurance) will rise the most, to cover the risk of more older people being in work. However Katharine Moxham, spokesperson for Group Risk Development (GRiD), says this doesn't have to be a given: “What HR directors might not be aware of is that if you can demonstrate you have good health and wellbeing initiatives; that you promote flexible working, reduced hours, and vitality, then insurers will listen and will be able to reduce premiums.” She adds: “Even demonstrating your employee assistance programme is well engaged-with could make the difference.”
Could older be better?
There’s a host of other data that actually shows older staff take less time off sick (so cost less) than younger staff, and even take less holiday. In which case, any benefit cost rises may balance out. And although there will be a huge rise in the number of older employees, Dean says it’s not all bad news for benefits: “The broader context is that people are older, but they’re healthier for longer. Insurance premiums will only rise if percentage increases in longevity rates start to fall behind rises in the age of the working population.”
Both Moxham and Dean agree that a good first step would be to review the age at which protection insurance benefits end, and decide a strategy for them. Dean adds: “It may sound perverse, but the worst thing to do is actually treat older staff too differently. For instance, offering flexible benefits probably isn’t a good solution if used to deal with more older employees. All that will happen is that young people will choose cash and holidays, while older people will choose more insurance-type products, which means that you get a skewing at the older end, and you don’t have an equal spread of risks. It's far better to treat people the same, but appreciate older people can be given fewer hours, or homeworking options.”
SOURCE: 'Is 75 the new 65?: Rising to the challenge of an ageing workforce' The Economist Intelligence Unit, on behalf of Towers Watson, February 2014