Dealing with the ageing workforce challenge
Is retirement for all of us?
While there is a strong economic case for people having longer working lives, 80 percent of employers have no strategies in place to retain this older group of employees. But, says Paul Jarvie, investing in older workers is well worth it.
Retirement is a construct that is only about 100 years old. It was introduced to help older and aged workers live with some dignity, given their long and hard-working lives. But the world has changed since then. We are healthier, a lot of work is not as arduous as it used to be, and we are living longer.
Our population demographics show a decreasing number of under 25-year-olds, and an increasing number of people aged 55-plus. Fewer younger employees are entering the workforce. In addition, many older people need to work longer, while businesses need to retain and re-skill them.
Extending people’s working lives has become critical for New Zealand. A birth rate of 2.1 is required to naturally grow the population, but the current rate sits at 1.5. This low birth rate puts big strains on governments to fund retirement plans, along with other age-related services such as health and transport, now and well into the future.
Put simply, New Zealand is running out of workers, a phenomenon shared with many other countries. The easing of immigration rules only goes some way in alleviating the labour and skills shortage, as we compete in an international market for migrant labour.
The question then becomes: how can a smaller and ageing working population fund superannuation as well as the extra costs of healthcare, transport, income supplements and housing?
Older workers need to work; retirement is not an option. New Zealand’s KiwiSaver fund shows 40% of those 65-plus have less than $30,000. With this amount, a retiree withdrawing $500 per month will empty their KiwiSaver in five years. Given we are living longer, into our mid-80s, this does not look like a happy retirement.
At withdrawals of $700 per month, KiwiSaver will be gone in 3.5 years. The overall fund average is $54,000, however, there are 35,000 fund members aged 61-65 with less than $10,000.
In addition, home ownership is on the decline, which means more people are renting. In Australia, 38% of workers do not expect to retire before they are 70, with 70% citing financial hardship. Statistics NZ predicts that there will be around 600,000 in the 65-plus labour force by 2078, up from 188,000 in 2020.
The simple answer may be to increase the age of entitlement. Many countries have or are moving down this route. The standard retirement age of 65 is now closer to 67. Some countries are even contemplating 69, or even 72 in the case of Denmark, by 2050.
Moreover, research from the UK suggests that if people worked an extra three years, this would add 3.25% in real Gross Domestic Product (GDP) per year by 2033. In New Zealand, the Ministry for Social Development has projected that older workers’ earnings will grow to $13.6 billion by 2041, from a base of $4.8 billion in 2016. Older workers contribute to the economy like anyone else, adding to government income through taxes and spending.
A fuller working life can also give individuals the chance to have the retirement they choose, along with the other social and psychological benefits that working provides. And encouraging later-life working is not only good for the economy and individuals, it’s also good for business.
But despite the strong economic case for fuller working lives, 80% of employers have no strategies in place to retain this older group of employees.
Investing in older workers is well worth it. Long-standing employees already know your business and have huge amounts of business IP and knowledge. Research also shows that older workers are more than capable of learning new skills and ways of working – they may just need a little more time and training.
Companies can offer ongoing training courses to help ensure employees maintain their employability and look at greater flexibility for returning older employees. The notion of doing some work, while also undertaking recreational or volunteering activity, fits well with many older employees.
The phenomenon of retirees returning to work is gaining momentum. We see older workers with specific skills being called back by former employers to plug knowledge gaps. Sometimes you need fresh blood to get new ideas. But other times you need to get things done quickly – and that’s when you need those with pre-existing knowledge and experience.
Contrary to popular myth, the evidence shows that keeping more older people in work actually improves employment prospects for the younger generation, and in some cases even increases their wages.
Older workers need to be recognised for their ongoing contributions and valued for their experience and knowledge. They have plenty to offer, and employers are urged to retain and recruit them – now more than ever.