Last month the government launched its consultation into how the current default retirement age (DRA) is working. I for one would like to see the back of it as fast as possible – although plenty of people disagree with me.
The DRA is currently 65 and has been controversial ever since these regulations came into play in 2006.
It has been legally challenged in the likes of the Heyday case when the charities Help the Aged and Age Concern brought the action to say that the DRA fails to adhere to an EU directive against discrimination (in July Heyday lost its appeal against an earlier European Court of Justice ruling).
Generally human resource professionals appear to have been happy to stick with the DRA because it helps with workforce planning and allows employers to wait for retirement dates for older poor performers rather than go through onerous performance management procedures when people are no longer quite up to the job.
To date, it is really pensions professionals who have been well ahead on this one. Perhaps because they are aware of the rising state pension age (which is not linked to the default retirement age) even if it is scheduled only to go higher than 65 in the distant future (it will reach 68 in 2046).
Already pensionheads are developing retirement products that allow for flexible working, contract working and other ways to ease into retirement gradually rather than in one fell swoop at 65.
Somehow this positive message from the pensions world needs to get across to HR departments and then down to line managers. This is going to take a long time to sink in because it involves a fundamental rethink on how workplaces are managed.
But it is not unheard of. Already many employers have had to occasionally re-employ retirees on a contract basis to manage specialist projects or oversee departments where redundancies have left them bereft of the required skills and experience.
So I will continue to beat the drum to scrap the default retirement age to let people retire when they feel ready to. And others will argue back that this is a white-collar, London-centric view and doesn’t take into account shorter lifespans in particular regions among more manual-based jobs.
Either way, the reality is that in the coming years many people will not be able to afford to retire at 65 even if they wanted to, and that will be the biggest influencer of change.
Debi O’Donovan is editor of Employee Benefits magazine
It’s difficult to argue against the prediction that the combination of the shift from DB to DC and our expectations for the quality of life both before and after our working life will lead to very different retirement scenarios in the future. Furthermore, while the principle of a default retirement age may have won the first battle, it seems unlikely to survive in the longer term.
Businesses may find they have to be more accommodating to older employees. Employees, in turn, may find that, much as they might like to retire, their funds won’t buy the future they want. So options such as part-work, part-pension will need to be considered as the new compromised retirement.
At present, pension schemes tend to deal in absolutes: there is a destination date when everything is going to come together to produce a retirement income for the rest of your days.
While GPP members can, of course, change their selected date as often as they please, it’s merely a case of moving the end point. A phasing of benefits – with policies and investment strategies maturing on a series of dates – would be more effective but such planning needs to be in place some considerable time before benefits commence. Even then, the outcome could well be a series of annuities purchased from different providers at different times; a complexity many would prefer to do without.
So what is the answer? It probably lies in a combination of education, advice and technology, the degree to which each element may apply probably being a function of the complexity of the individual’s needs and their personal wealth.
So who will pay for this? Employers may subsidise advice for senior executives but they are unlikely to support all their employees. And while the Government and the regulators would undoubtedly like to see improved financial capability in the workplace, employers will be keen to control the costs of doing so. Education will have to evolve- fully utilising online media, interactive webinars, avatars and planning tools – to meet these challenges. Alongside this, benefits technology will need to evolve too, to offer as much support to those drawing benefits as it currently does to those building them. Helping individuals to manage an annuity portfolio online is just one example.
Robin Hames is head of technical, marketing and research at Bluefin