Longevity in the workplace: 80 is the new 60 and employers need to adapt to this reality

18 August 2016

For the first time in history, more than half of the children born in developed countries today will live to the age of 100. In the UK, this trend will have significant implications for the workplace where, to achieve today’s retirement incomes, people entering today’s workforce may need to work until they are 80.

For employers, this will pose a number of challenges, in particular to overcome historical workforce planning models that assume a fixed retirement age of around 60, to embrace more flexible working at all ages, and to improve overall workforce engagement in retirement planning.

The Death of Retirement

Royal London’s recent report “The Death of Retirement looked at some of these trends.  It found that on average earnings, and paying a typical contribution rate of 8% of salary:

  • a 22 year old today would need to work and save until age 77 to attain a “gold standard” pension of two thirds of their final salary,
  • if they don’t start saving until age 35, they would need to work and save until age 81 to attain the same gold standard pension.

For younger people entering today’s workforce, who often have competing savings priorities in early years (e.g. saving for a house deposit), this points to an extended period until retirement. The emergence from April 2017 of Lifetime ISAs, whilst overall welcome, looks set to exacerbate this trend.  

This points to three key challenges for employers:

  • For younger employees who may not expect the prolonged retirement of the current generation, extended career breaks at an early age and flexible working will increasingly be seen as the norm. To attract and retain the best people, companies will need to significantly adapt HR policies to accommodate these trends.
  •  Older workers will increasingly seek to work well beyond ages currently expected by most employers. Companies will need to address this reality, by making concerted efforts to attract and retain key elder staff who will become a significant part of the workforce. It is estimated that by 2020 a third of the workforce will be over 50 as people remain in good health and live longer. 
  • For all workers, in order to plan effectively in the new environment, it will be important to engage fully and at an early age in retirement decision making.   Many employees are increasingly falling into the so called ‘double defaulters’ camp, those who are auto-enrolled into a company pension scheme at the default contribution rate and default investment strategy but do not actively monitor investment or contribution choices. Improving communications and engagement with these employees is vital in order to enhance expected retirement outcomes for the all involved.

So what can we do about it?

The good news is there are several innovative ways to use age-related business principles to guide pension strategy. For example, companies can introduce consumer segmentation marketing techniques into their employee communications - in other words targeting specific pensions messages at distinct groups of employees, depending on their needs and priorities.  For example:

  • one multinational we have worked with radically improved employee engagement on pensions by setting a target ‘silver standard’ of 50% of pre-retirement income and focussing on segmenting its staff to get key messages across effectively.
  • other clients have taken active steps to communicate with ‘double defaulters’, e.g. by using videos, modelling tools and pensions dashboards. One major client has also considered resetting contribution levels every year to encourage a culture where saving more means getting more.

A pension scheme is a huge investment on the part of an employer and, just like most other investments businesses make, it takes significant employee engagement to see the right return on that investment.

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