New rules for off-payroll workers don’t apply immediately but employers should already be considering their implications.
Since the 2011 abolition of the Default Retirement Age – which meant that employees could no longer be forcibly retired on the grounds of age alone – employers have been faced with potential problems associated with aging workforces.
Nevertheless, Chase de Vere’s own research tells us that a lot of HR departments still aren’t taking the issue seriously enough and don’t have sufficient plans in place.
Recent employment figures from the Office for National Statistics will hopefully provide them with much-needed food for thought. They show that just 1.19 million people under the age of 65 describe themselves as ‘retired’.
According to projections from Aviva, this figure is expected to reach an all-time low in the coming year and, staggeringly, could even hit zero by the year 2035.
A primary driver behind this has been the recent hike in the women’s State Pension age from 60 to 65, with the proportion of women considered retired before age 65 having fallen by around 40% since 2010 to an all-time low of 0.66 million.
Further imminent rises in the State Pension age for both men and women are therefore likely to see a continued acceleration in the trend. It is due to rise for both to 66 in 2020 and to 67 between 2026 and 2028. Another rise to 68 is also planned for between 2037 and 2039.
Furthermore, a recent International Monetary Fund (IMF) report has warned that the State Pension age may have to rise even further in the UK. In particular, it casts grave doubts on the long-term sustainability of the triple lock – which guarantees that the basic State Pension will rise annually by a minimum of 2.5%, the rate of inflation or average earnings growth (whichever of the three is the largest).
Indeed, the IMF report goes so far as to suggest that State Pension entitlements may become subject to means testing in the future, although we feel that any such move would be met with considerable political resistance.
So what action should employers be looking to take to combat what is increasingly looking like a perfect storm?
They should certainly be coming to terms with accommodating an aging demographic and making appropriate tweaks to their succession planning. But paying due attention to workplace pension arrangements can also increase the chances of many employees being able to retire around the time they had originally intended.
This will not only involve checking that the pension scheme is fit for purpose but also ensuring that employees are planning effectively for retirement.
Governance reviews, which we encourage annually, are a good starting point but they tend to focus mainly on issues like investment performance and communications. It’s all very well having a suitable default fund and letting everyone know about it but that can only achieve so much without the right contribution levels being made.
There is therefore a lot to be said for having an additional review focusing on pension strategy, ascertaining whether contribution levels are sufficient and, if they are not, determining the courses of action to be taken.
One solution to consider if contributions are insufficient to meet retirement objectives is for the employer to pay in more itself, and we can advise on what levels of increase could be appropriate to a firm’s particular circumstances.
However, we are aware that many employers, particularly smaller ones, feel they cannot afford to increase their contribution levels at all. So, the shortfall may have to be addressed entirely by increases in employee contributions, and educating the workforce is key here.
Chase de Vere is unusually well placed to help in this respect because, unlike many of our competitors in the employee benefits space, we have an independent financial adviser (IFA) arm.
Through this we can offer a range of financial education services that can shed light on retirement planning, ranging from generic guidance delivered via seminars and workshops to one-to-one face-to-face personal financial planning advice.