Trapped in the retirement catch-22

Pressure from employers, financial markets and government economic policy are all punishing the over 50s. John Greenwood reports on a growing retirement crisis

The Pensions Policy Institute’s message to 45 per cent of workers over 50 could not be more bleak. Work and save for 11 years or more beyond State Retirement Age if you want to replicate your working life living standards in retirement. Worse still it estimates that a substantial proportion of this group will be barred from doing so by disability, discrimination, or lack of employment opportunity, face worsening annuity rates and could even find themselves squeezed out of their jobs despite age discrimination legislation.

The PPI’s latest report spells out a grim future for the generation that will be the first to rely on DC for their retirement.

Nikki Cleal, director at the PPI says: “The report demonstrates that many people need to start saving more today if they want to avoid having to work much longer than they planned and want to have an adequate retirement income in the future.”

The PPI’s report goes on to explain how difficult achieving a working life up to State Pension Age will be, let alone carrying on thereafter, due to circumstances beyond their control such as health problems. It says that by the time men and women are aged between 60 and 64 around 30 per cent of them have a disability that limits their ability to work. Some will be compelled to leave work altogether.

Age, gender, ethnicity, occupation and location affect the likelihood of having a work limiting disability, with these effects more common among older people in lower wealth quintiles and those with lower levels of education.

The report found those with a work limiting disability in the North East are less than half as likely to be working than those in the South East, while older women who have a work limiting disability are less likely to be in paid work than men.

Not surprisingly it will be manual workers are predicted to be most likely leave work due to health problems, either because the employer cannot offer them suitably alternative employment or because the employee does not feel capable of changing/shifting roles.

Mike Morrison, head of pensions development, Axa Wealth says: “This report shows those who are not able to continue working will be at a huge disadvantage. For those already aged over 50, for whom retirement is not too far off, the macro picture is currently rather bleak with retirement income being heavily impacted by low annuity rates and rising living costs.”

The report found ethnicity also plays an important role. In the UK people from particular ethnic minority groups more likely to suffer from health problems than white people. For example, Pakistani men are twice as likely as those in the general population to suffer from heart disease. People from some ethnic minority groups may therefore be more likely to need to leave work at younger ages as a result of their health problems.

The report comes as a growing number of voices are pointing the finger at quantitative easing as making things much worse. Figures from MGM Advantage show level annuity rates declined by a further 2 per cent in the first three months of this year, and the long-term trend has been negative.

Ros Altmann, director-general of Saga says: “Since 2008, annuity values have plummeted, because annuities are priced against 15 year gilt yields. Anyone recently or soon-to-be retired is facing a permanent income reduction as a result of QE. This, in itself, is bound to have negatively affected consumption, and weakened growth relative to what it would otherwise have been. Nearly half a million annuities are sold each yearthis is not a tiny issue.”

Worse news still for this cohort is a judgment from the Supreme Court that is being interpreted by some as leaving the door open for businesses to set their own retirement age for staff.

The case, viewed as one of the most significant for years on the issue of age discrimination, involves Mr. Leslie Seldon, a former senior civil litigation partner at Clarkson Wright and Jakes. Despite the abolition of the default retirement age, a complex Supreme Court ruling on 25th April has found his dismissal upon turning 65 to be legitimate because, amongst other things, it allowed effective succession planning within the firm.

Dianah Worman, diversity adviser at CIPD, says: “The main messages to be taken from this complex ruling are the difficulty of providing well evidenced reasons to justify the retention of a retirement age and the importance of good performance management to safely dismiss a person fairly on the basis of capability rather than their age.

“Dismissing people because of their age, rather than their performance and capability, is not only potentially unfairly discriminatory, but counter-productive too. It robs employers and the economy of the talent and skills we need to thrive in the modern, competitive world. In our view, good succession lanning is about ensuring that there are employees with the right talent, skills and capabilities to sustain business performance. It is not about throwing well-performing older workers out on their ear simply because there are ambitious younger workers snapping at their heels.”