The first of the Baby Boomer generation are hitting their mid sixties now, thus starting what some are calling a “silver tsunami” of retirees over the coming decade.
The Boomers make up a disproportionately large part of the workforce compared to other age groups so the impact these 1950’s babies retiring is having a major impact on policy throughout the developed world – both governmental and workplace.
Already in the UK a government review of default retirement age has been brought forward to this year and rumours abound that various political sides would be happy to scrap it altogether, assuming they had the backbone to make such an unpopular move. So not too many years may pass before we regularly see some people working into their 70s or even 80s.
Readers of this magazine will be familiar with the need to work for longer and the lack of pensions savings.
However, any change to, or removal of the retirement age, will throw up some awkward problems for insurance-based employee benefits because of the higher premiums that are charged for older employees.
Over the past year we have heard of more employers reducing or dumping group risk benefit for their own protection
Discriminating against older workers by not giving them the same benefits as their colleagues in similar roles goes against age discrimination laws. To date, so few employees are past the age at which insurers seriously hike prices (or will not cover them at all) that employers have been able to deal with this on a case-by-case basis, often without breaking the bank.
However, if increasing numbers of older workers are in the workplace then employers need to think of other solutions to avoid an explosion in costs. One option is for an exemption to be made in law. The group risk industry itself is lobbying government to retain the current age cap on group risk benefits.
The alternative does not look pretty. Over the past year we have heard of more employers reducing or dumping group risk benefit for their own protection. So the upshot is that, while the incoming Equality Bill is trying to make employers treat all staff evenly it may actually have the effect of reducing group insurance benefits for all.
While I would normally back equality all the way, in this case the reality is that older people are more likely to get ill, become incapacitated or even die while still in work. We cannot get away from this fact so need to ensure there is a special exclusion or different age cap for group risk benefits. Otherwise everyone will lose out.
Debi O’Donovan is editor of Employee Benefits magazine
It is not just the default retirement age that is giving headaches for employers. The change to the minimum retirement age from April 2010 has provided a number of challenges for everyone involved in workplace pensions.
Dealing with the obvious first, it is vital that sponsors ensure their members are aware of this change. The absence of any phased introduction means a significant number of people have a firm deadline to meet, or they have to wait up to a further five years to access their benefits.
Fortunately, the affected group is clearly defined and therefore providing a well managed communication exercise has been relatively easy. As with any communication exercise with an important message, using the right media has been vital to get the message across.
In the first instance we have drafted straightforward, clear communications for our clients to issue to affected members. This approach, whether by letter or email, provides the additional protection for clients that the message has been drafted by professional consultants. Where possible this message has been supported by other media, particularly the option of face to face support for those affected by this change.
For our clients this exercise is complete, but for companies who have yet to act time is very pressing. Whilst getting benefits paid prior to the deadline should still be possible, if the process is yet to start then making an informed choice and drawing benefits is likely to be challenging.
Using the right media is vital to getting the message across
Once the urgent issue of retirement is dealt with other important consequences from this change remain. Many members will have historically selected retirement ages below 55 when joining pension arrangements which allow this. These members will now have de-risking strategies which will begin too early and leave members in low risk funds for up to an additional five years before they can draw their benefits.
Any solution, whether it is leaving everything as it is, changing members’ retirement ages to realign their de-risking to age 55, or creating a new fund solution, carries a risk of future complaint unless members under- stand what is happening and its effect on them.
So further help will be required before all the consequences of this change are dealt with.
Iain Chadwick is senior consultant at Johnson Fleming