The push to raise the retirement age for state pensions over the past few decades is understandable, given the rapid ageing of the population and the likely increase in the burden of funding it on the taxpayer.
Around a quarter of the adult population is now over 65 – a figure that is expected to increase to 30 per cent by 2070, according to the Institute for Fiscal Studies (IFS). Already, more than half of government spending on welfare goes to pensioners and the share of national income spent on welfare payments to pensioners has increased from 4.2 per cent 20 years ago to 5.9 per cent and is expected to continue rising to 6.4 per cent by 2050-51, the IFS argues.
Although more money will be required, the ageing population means there will be fewer working-age people to shoulder the burden. An International Longevity Centre UK (ILC) study published in 2022 forecast a shortfall of 2.6mn workers in the UK economy by 2030 – almost twice the workforce of the NHS – given the ageing population, the Covid-19 pandemic and Brexit.
The pandemic took more old people out of the workforce, and inactivity rates among the over-50s are still running about 1.5 percentage points higher than pre-pandemic levels. The economic inactivity rate for 50-64-year-olds currently stands at 27.3 per cent. Of the 8.9mn people who are deemed economically inactive, 40 per cent are aged between 50 and 64, the data shows.
Indeed, there is a persistent gap in employment rates between older and younger workers, with around 800,000 of 50-64-year-olds stating they would like to be in work but aren’t, says Emily Andrews, deputy director for work at the Centre for Ageing Better, a non-profit organisation.
“We would always expect there to be some gap [but] the evidence suggests that it could be – and indeed needs to be – smaller,” she says.
“It’s important for the growth of our country that we’re making the most of our potential workforce, it’s important in terms of our tax take… and also for individuals,” she adds.
Health equals wealth
Older workers often face more barriers to taking on full-time roles, such as caring responsibilities or long-term health conditions. Although they make up a third of the overall workforce, over 50s represent half of those who are out of work due to ill health, Andrews adds.
Older workers also find it more difficult to return to the workforce after periods on the sidelines and are more likely to suffer long-term unemployment.
Fewer than one in five over-60s get a job through the government's Work and Health Programme, and if the state expects people to be in the workforce for longer "we can't accept that level of performance", Andrews argues.
"All of the evidence we have collected... suggests that a targeted 50-plus employment service is the way to go. Because as we get older people think these services aren't for them."
One reason for the longer periods spent in unemployment is the specialist nature of their roles, says Jon Boys, chief economist at the Chartered Institute for Personnel and Development (CIPD). Typically, unemployed workers attending job centres are given four weeks to look for a job before being told to find any job.
“Which is fine when you’re young because you’re not committed to a career,” says Boys. “But when you’re older and you’re very specialised, it’s going to take more than four weeks to find that job.”
The CIPD produced a report, Understanding Older Workers, in 2022, which shows that median worker pay and management responsibilities peak when people are in their 40s. This is true even when controlled for the amount of hours worked.
There are some obvious reasons for this. If, by definition, only a few people can make it to senior roles within large organisations, then progress for many will be limited, which leads to people reassessing career and life goals when they see no obvious route for further progress.
Rates of self-employment climb as workers hit their 40s and peak in their early 50s, but remain strong until retirement. Older workers are also more willing to be paid less if it means working fewer hours, the CIPD found.
“That will take the average down, if people take their foot off the pedal a bit,” the CIPD’s Boys says.
“Another part of it could be productivity and skills becoming out of date. It would be brilliant if our productivity peaked just before we retired, but I’m not sure it does,” he adds.
Evidence on the productivity of older workers is mixed. A 2020 study by Bayes Business School found there was “either weak or no associations” between changes in age mixes in a workforce and its performance. An OECD study from the same year contends that companies with a slightly higher than average balance of over-50s are more productive, as they pass on their experience to younger workers and help them to perform better. These firms also tend to have lower rates of staff turnover.
Old (farm) hand
The ageing workforce also affects some industries more acutely than others. Census data shows that more than 40 per cent of farmers are over 60, and almost 30 per cent are older than 65. Many farmers live and work on family-owned farms long after retirement age, even though a younger generation may be doing the most active work, the National Farmers’ Union’s skills and employment adviser Thomas Price says. He acknowledges that employers in the industry “are finding it increasingly difficult to recruit” younger staff.
Construction, manufacturing, transport, hospitality, education and health and social work are the sectors facing the biggest shortfall in staff, according to the ILC.
The construction industry has lost around 347,000 workers, or 14 per cent of the total workforce, over the past five years and the decline has been steepest among “primarily older-age demographic workers in specialist trades”, according to Noble Francis, economics director at the Construction Products Association.
Double-digit downturns in the housing and home improvement markets have contributed to this, but with the industry only taking on 31,000 trainees a year (and training schemes suffering a drop-out rate of 40 per cent), they are not being replaced quickly enough by new recruits. Election pledges being made by various parties around infrastructure investment, net zero and home building could all ring hollow if this issue is not addressed, he argues.
In manufacturing, the loss of workers to retirement is “exacerbating” gaps in technical skills, with specific areas of expertise proving difficult to replace among younger workers, says Jamie Cater, a senior policy manager at trade body Make UK. This is true across all levels of the workforce.
Repeated surveys of members have highlighted a skills gap at leadership levels, which companies are keen to address given some of the big changes being faced by industry in areas such as digitalisation and sustainability, he adds.
It is a particular problem for the defence sector, given the long period of underinvestment after the Cold War ended, when “everyone stopped recruiting”, according to David Lockwood, chief executive of the UK’s second-biggest defence contractor, Babcock International (BAB).
This means the industry has lots of old workers and younger staff but big gaps in the middle. Ensuring “we retain the experience for long enough to transfer the skills” to younger workers is a key challenge, he told journalists at a media event earlier this year.
It has started hiring older apprentices and people “without the qualifications [but] with the right attitude and aptitude” to make up for a shortfall in graduates from technical colleges.
Many companies still approach recruitment as a buyers’ market in which they can pick the best candidates, but with so many industries facing worker shortfalls, “we have to sell ourselves to the job market” by making the company as inclusive as possible, Lockwood says.
The hospitality industry has one of the highest vacancy rates, and although the number of positions available fell to 107,000 in the three months ending in April, they are still 15 per cent above the pre-pandemic level of 93,000.
Pubs group Fuller, Smith and Turner (FSTA) targeted the recruitment of older workers not only as a way of filling this gap but also redressing an imbalance in its workforce, which emerged from the pandemic with more 16-17-year-olds and fewer over-50s.
Employing a more diverse range of ages presents a more accurate representation of the company’s own customer base and makes for better teams, Fuller’s people director Dawn Browne argues.
Younger employees, especially those who spent a lot of time inside during the pandemic, can lack some of the social skills and problem-solving capabilities of older employees, she adds. An older worker may be able to better handle a customer who is unhappy with their food or provide support to a colleague who is having a bad day, relieving pressure on general managers, she adds.
It worked with Rest Less – a community website aimed at over-50s – to target potential employees and run surveys about which benefits would appeal most to recruits.
“What we wanted to know is are we going to have to do anything differently to attract this age demographic,” Browne says. The thing that came out on top was the need for flexible hours.
“That’s one thing we can be brilliant at in hospitality. If you want to work five hours, 15 hours or 25 hours a week that’s great,” she adds.
Rest Less also advised on the nature and tone of job advertisements, which are “often very diverse gender-wise and ethnicity-wise, but often very young”, says the company’s co-founder and chief executive, Stuart Lewis.
He argues that advertisers should avoid terms such as ‘energetic’ and ‘tech-savvy’ in recruitment ads, which some older workers find discriminatory. Besides, the latter is a lazy stereotype that hasn’t caught up with reality, he says.
Silver surfers
“Tim Cook, the chief executive of the biggest tech firm in the world, is in his early to mid-60s. And Tim Berners-Lee, who built the internet, is in his late 60s,” he adds.
Although more employers are recognising the benefit of hiring older employees in customer-facing roles, they’re not so great at either hiring or maintaining career paths for those middle managers whose earnings and responsibilities may have peaked, Lewis says.
It's in the hiring process for these roles that “ageism really bites”, Lewis argues. “And the most common form of it is being told you’re overqualified.”
If an older worker applying for a job has done something more senior in the past, the fear from a hiring manager is that they will be difficult to manage or they’ll get bored quickly and leave.
“Some older workers will be difficult to manage. Some will get bored really quickly [but] the same is true of workers in their 20s. The important thing is that they’re not stereotyped based on their previous role,” Lewis says.
HR departments put a lot of time into graduate recruitment and parental support but hardly any thought into hiring senior workers, he says.
Other than being more flexible over working hours – such as considering two part-time roles when looking to fill a full-time position – providing leave to care for elderly relatives, training and support for dealing with menopause and alternative career development pathways for people who see no other route to progress are some of the measures they can take to be a more appealing employer to older staff, he argues. Dr Andrews also highlights the provision of a "mid-life MOT" as a useful tool. First recommended in the 2017 Cridland review into the state pension retirement age, this offers guidance on planning for later life in three key areas: work, wealth and wellbeing.
Most workers are not prepared for retirement. More than two-thirds of 50-64-year-olds have no idea how much they’ll need to save, which has created a £132bn shortfall, a 2022 report from the Social Market Foundation found.
Standard Life, a pensions company owned by insurer Phoenix Group (PHNX), found in a recent survey that retirees had £131,000 less on average than they’d hoped for when they reached retirement age, which equates to around £480 a month.
“It can be hard for people to work out how much they need to save to achieve their desired standard of living in retirement, particularly earlier in life,” says Gail Izat, a managing director at Standard Life. “Circumstances change, and over a long period of time inflation can distort target figures.”
It found that the number of 55-64-year-olds returning to work after retiring jumped from 6 per cent in 2022 to 11 per cent last year. Some 64 per cent cited financial reasons as their main incentive for rejoining the workforce.
The Centre for Ageing Better’s Dr Andrews says that mid-life financial MOTs should be conducted among people in the 45-55 age bracket.
“The challenge is, if you wait until people are in their mid-50s before you put this kind of intervention in, particularly around pension savings, it’s a bit too late.”
