Working into your late sixties, seventies or even eighties has become increasingly common since the removal of the default retirement age in October 2011, with figures from the Office for National Statistics showing that almost 10 per cent of over 65s are still in employment.
The rate of increase in older worker numbers appears to be accelerating. Figures published by the Office for National Statistics in June showed almost 100,000 more people working past the age of 65 than a year previously. following a spring surge in older worker numbers. The ONS Labour Market figures show the pace of increase in the number of people working past state retirement age is accelerating. It took more than 10 years for the number of people working past age 65 to double from 500,000 to a million, a milestone reached in spring 2013, yet at the current rate of increase the figure of two million will be reached within six years. One in 10 over-65s is now working, according to the ONS.
With future retirees having significantly lower levels of pension provision than their parents’ generation, the growth in older workers looks set to continue, in many cases because they cannot afford to retire, rather than because they want to carry on working.
But, while it’s refreshing for workers to know they can carry on regardless, whether through choice or economic necessity, this shift in the workforce has significant implications for workplace health and wellbeing and the provision of the products that support them.
The main issue for employers is cost. “The risk of conditions such as cancer and heart disease increases with age so you can see an increase in claims on many of the health benefits, which will push up premiums,” says Xafinity Healthcare principal consultant Stuart Shaw. “As well as an increased incidence of claims, medical insurance claims for cancer and heart disease tend to be the expensive ones.”
Martyn Anwyl, managing director of Buck Consultant’s health and productivity business points to data from one medical insurer that shows 60 per cent of claims costs are generated by employees aged over 40. “Increasing claims costs aren’t only going to push up premiums,” he adds. “As healthier employees see their P11d costs rise, they’re going to want to leave the scheme. This makes the risk pool worse so costs keep rising.”
Older workerLegal exemption
While this premium pressure is potentially bad news, employers can reduce their exposure as a result of an exemption. This applies to all insured benefits and means employers can stop providing cover when an employee reaches state pension age.
To benefit from the exemption, employers must ensure they amend any employment contracts to indicate that benefits cease at state pension age rather than a set age or at retirement.
Further, while the exemption is in place for group risk and medical insurance, healthcare trusts cannot benefit from it as, strictly, they’re not insurance. “It’s a bit of a grey area as a lot of trusts do contain an element of stop loss insurance,” admits WPA Protocol managing director Rachel Riley. “If an employer wanted to reduce the cover available to older employees I’d recommend taking legal advice or switching to a product such as our Corporate Deductible, which offers similar savings but is an insurance contract.”
But, even where an employer uses the exemption, Aon Hewitt head of health and risk Stephen Hackett, says it can still cause difficulties. “You could end up with a situation where you have two employees doing the same job but one is aged 35 with healthcare benefits and his colleague is 70 with nothing. It’s not very motivational and we tend to find that employers are too paternalistic to provide nothing at all to their older employees.”
Fewer signs of ageing
Although claims can increase with age on many healthcare benefits, the effect is less marked on some. JLT Benefits Solutions principal, healthcare and risk Nick Boyton says this is the case with life assurance, where he’s seen a lot of employers extending cover to age 70, often at very little extra cost. “Although the probability of health problems increases with age, there isn’t a lot of difference in the risk of dying at age 65 and at age 70,” he explains.
Healthcare cash plans are also more sustainable alongside an ageing workforce than some of the risk benefits. Although claims may increase, caps on benefit levels mean there’s greater control over potential payouts so an older employee isn’t going to break the bank.
Higher claims incidents do mean that some providers have safety mechanisms in place. For instance at Westfield Health although the company paid plans, including its hospital treatment insurance, have no upper age limits, employee upgrades and partner cover applications are limited to employees aged 65 and under. Westfield Health executive director Paul Shires adds: “We’re constantly reviewing our cover to ensure it meets the changing needs of employers and their staff and we believe most of our existing benefits have great value to older workers. It’s often just a case of how or for what illness the policyholder uses the benefit as they age.”
Shifting benefits
While employers can stick with some of the traditional healthcare products, forward thinking ones are adapting benefits to suit the ageing workforce. A key part of this shift involves introducing more flexibility around the benefits offered to employees.
This not only helps to contain costs but also ensures that benefits are suitable, whatever the age of the employee. For example, while life assurance might be a valuable benefit for a 30 year old with a young family and large mortgage, a 70 year old who has paid off their debts might not be so impressed.
Hackett says that pensions auto enrolment is helping employers develop a more flexible approach to healthcare benefits. “The auto enrolment platforms make it easier for employers to consider offering choice. They might want to provide some core benefits and then allow employees to pick the other elements they want.”
But Boyton warns that employers could face unintended consequences as a result of how they structure their flex schemes. “If a benefit such as medical insurance is only offered through flex rather than as part of the core package, an employer could find that the healthy employees don’t select it. This will lead to a high risk pool,” he explains.
Keeping well
As well as meeting the more diverse workforce’s needs through flex, advisers are also seeing a shift in healthcare strategies to ensure they support older employees. Anwyl says that health and wellbeing strategies are becoming much more prevalent as employers understand they need to help employees be more health aware. “Employers do need to educate employees, especially if they have some sort of flexibility around their benefits,” he says. “They also need to recognise that there are different hot buttons across a workforce so they must ensure their health and wellbeing strategy appeals to everyone.”
The ageing workforce and its higher risk of serious lifestyle related conditions such as cancer and heart disease also means that preventative benefits such as health education and screening are growing in popularity.
For example a health screening for diabetes or some of the common cancers is a relatively low cost benefit that can give an early warning or diagnosis that is potentially very valuable.
“An employer has to be careful how health screens are positioned as there is a risk of a spike in medical insurance claims,” says Jelf Group director Matthew Judge. “However, with some of the more serious conditions such as cancer, a health screening can give an employee an early diagnosis that enables them to be fast tracked into the NHS for treatment.”
But, while some employers are already reshaping their benefits packages, the relatively small number of older employees in the workforce means there’s still a lot of apathy. Judge warns against this. “Employers need to set their policy now,” he says. “Define what happens to employees who decide to work beyond state pension age and ensure employment contracts reflect this. It’s not something that should be done on the hoof.”
Tomorrow’s workforce – the rise of the older employee
With the removal of the default retirement age only three years old, and the number of older employees still relatively low, few employers have taken any action to age-proof their benefits. But, as the population ages, they could find themselves with a larger and larger pool of employees working beyond state pension age.
For example, Office for National Statistics Population Projections from 2010 show that the number of people of pensionable age is set to increase significantly in the next few years. While it predicts it will grow to 12.84m by 2015, by 2025 this number is set to be as high as 15.26m.
Although all these people won’t be in employment, broader population trends are likely to push up the number that do remain in the workforce. In 2010 there were 3.14 working age people to every person over state pension age; by 2025 this will have fallen to 2.77.
Improvements in healthcare are making it easier to work too. This is reflected in the increased life expectancies for men and women at age 65. While recent 65 year olds can expect to live another 18.2 years for men or 20.7 years for women, 65 year olds in 2035 will have an additional four years to enjoy.
Even where insurance products are only offered to employees below state pension age, it is important to note that this will increase in the coming decades. State pension age for women is rising from 60 to 65 by 2018, and then to 66, 67 and 68 for both men and women.
Financial planning issues will also affect individual’s ability to retire at state pension age. “The shift away from defined benefit to defined contribution schemes means that a growing number of people won’t be able to afford to retire,” says Stuart Shaw, principal consultant at Xafinity Healthcare. “They’ll have to keep working.”
The recession hasn’t helped retirement plans either, with pension pots shrinking as a result of poor stock market performance, or potentially unemployment and redundancy. This was underlined in research by Canada Life. It found that 66% of current employees were planning to work beyond age 65 in 2014, up from 35% in 2012, with nearly one in four saying the recession had scuppered their retirement plans.