Tackling the challenges of an ageing workforce

Over two thirds of large employers expect their staff will be forced to work for longer because they will spend too much money, too early, leaving them with insufficient retirement funds to last them a lifetime.

Heads of HR anticipate that on average 44% of their employees will work beyond state pension age (SPA) whilst 10% expect three quarters of their workforce will do so, according to Hymans Robertson's research.

But surely the introduction of auto enrolment will prevent this problem? In time perhaps, but changes in pensions create uncertainty and this uncertainty creates confusion and a lack of control. According to our focus groups only 23% of employees feel in control of their pension.

On the one hand we have auto enrolment encouraging saving, however we also have pension freedoms, which many claim encourages spending. We then have changes to state pension, resulting in an even lower pension for many. Throw in new limits on pension saving for high earners and you can see people have a lot of things to contend with. It’s not hard to see why many put off dealing with the realities of retirement.

Our research shows employers remain one of the most trusted sources of information and support – and of course it’s in employers’ interests to support employees in retiring at both the right time for them and the business.

What does an ageing workforce this mean for employers?

Employers need to understand the situation in their workforce, plan and take action if necessary. They need to know what proportion of staff are likely to work beyond state pension age.

If significant swathes of employees continue working into what is traditionally considered ‘retirement age’ the consequences for the shape of the UK workforce could be dramatic. If older workers stay in the workforce for longer, they could squeeze out younger generations of talent. If young people are unable to get their foot in the door, this could cause conflict between the generations.

This workforce management issue is all the more pressing for those with large numbers of manual blue collar workers. For these organisations there’s an imperative to ensure workers can retire before they become less productive. Having larger cohorts of older workers can also put pressure on talent costs.

Technology can tell employers how big a problem they have

Using technology, it’s possible to analyse the workforce to see how many are off track to retire on an adequate income. Only through knowing which staff are in a good position, and which are not, is it possible to take action to get them to a better place. This can help you make more informed decisions around future around benefit spend.

Analysis of a recent customer of ours showed that more than half of its employers (56.4%) were not on track to meet their retirement needs. By using our systems the customer was able to model the impact of various interventions such as increasing the default retirement age to 68, increasing contributions by 5% for employees who were off track and redesigning the investment strategy to increase expected returns. Further analysis under this basis revealed a significant improvement in retirement outcomes for employees, as shown by the increase in green bars on the right.

Such analysis helps both HR and finance functions work better together. By reviewing and sharing employee data in this way employers can make more informed decisions about how to tackle workforce management issues.

In addition to employer interventions we have seen by creating engaging communications employees feel more in control and able to take action themselves. For example in our own scheme we have seen more than 20% of staff increase their own pension contributions by 3% or more. So the solution helps employers and employees take control how their pension savings will impact their long term plans.

This article was written by Paul Waters, partner at Hymans Robertson.