Coming of age for wellness debate

The removal of the default retirement age should kick-start a sensible debate over extending working lives says John Greenwood

After years of worry, benefits professionals are breathing a huge sigh of relief now business secretary Ed Davey has confirmed that insured benefits are exempted from age discrimination legislation abolishing the default retirement age.

Predictions of what might happen had the exemption not been secured were dire. What would an employer, negotiating an ill-health severance
package on April 6 have said to an employee who said they had intended to work til they dropped?

But ministers have accepted the arguments put forward by Grid and others in the group risk community that protection coverage would have been the principal casualty of not offering an exemption. Now the industry is looking forward to how it helps employers manage the challenges of an ageing workforce.

With ageing societies placing an increasing welfare cost on a decreasing workforce, longer careers will be essential.

“There will be 48 million fewer people of working age and 58 more people of pensionable age over the next 40 years to 2050,” says Ryan Hughes, senior fund manager at Skandia Investment Group. “The double whammy is more elderly people so the government is spending more money on them and there are fewer people to pay for it.”

Employers are understandably opposed to losing the freedom to get rid of older worker when they reach state retirement age. The CBI calling for the postponement of the implementation of the default retirement age changes illustrates the sentiment well. But some experts believe a change of attitude to older workers is needed at senior management level for the sake of the entire economy.

George Magnus, senior economic adviser at investment bank UBS – the man who famously spotted the risk the US sub-prime market posed to the economy – believes ageing societies in the West need to embrace the talent offered by older employees if they are to compete with emerging economies.

He points out the close correlation between shrinkage of nations’ workforces and drag on economic growth.

“Western governments are going to be on the rack for a long time and companies need to begin to recognise that if they do not move on this
themselves, they will be in trouble,” says Magnus, who cites the example of one leading high-tech manufacturer in the US that will see 40 per cent of its skilled workers retire in the next five years.

The economic benefits of prolonging working lives should not be underestimated. “There is a key link between health and productivity,” says Robert Greenhill, managing director and chief business officer of the World Economic Forum, the organisation whose annual Davos meeting brings together top business leaders. “If you have a population that is healthy and productive later into life, not only do they contribute longer into the economy, but also the costs on that economy are less. At Davos there will be a focus on the issue of workplace wellness.”

But in an environment of fiscal tightening, how do those promoting workplace wellness programmes overcome short-termist attitudes “Health and wellbeing programs do bring significant returns, and they do so quite quickly. We saw with HIV and AIDS spending on workforces in
developing countries that the improvements were very quick,” says Greenhill. “The same principles apply in the workplace in developed countries. If you can deal with chronic illnesses like diabetes you will see improved productivity.”

While the group risk industry is breathing a sigh of relief at the threat the DRA could have presented to its business volumes, HR departments still face many other challenges as the demographics of their employee base change.

Michael Rendell, head of human resource services at PWC, says: “If people anticipate working into their old age, they may choose to take longer breaks earlier in their careers, perhaps to concentrate on family life or to travel overseas. Ultimately companies are going to have to adapt to retain talented people and keep them motivated throughout a longer working life.”

Western governments are going to be on the rack for a long time and companies need to begin to recognise that if they do not move on this themselves, they will be in trouble

And Georgina Jones, associate at Sackers & Partners, believes age remains an issue for pension schemes.

She says : “Although the Government is still of the opinion that the removal of the default retirement age will not affect occupational pension schemes as it will not affect the setting of a “normal retirement age” for their purposes, we must beg to differ. Occupational pension schemes are premised on people retiring at a certain age, classically 65. If this is no longer to be the case they will need to adjust. If they do not do so, they risk age discrimination claims.

“If they have not already done so, schemes will need to consider what benefits to provide to those who continue working beyond the scheme’s
normal retirement age and should address the issue of flexible retirement as this is likely to become more popular.”