A gold watch, a hearty smile and a firm handshake. Such are the traditional dignities of retirement after long service in the UK. With the forthcoming abolition of the Default Retirement Age in April this year, though, much of this may change. Jane Gray discovers the pros and cons around the intention to extend the potential of our working lives.
Thirty per cent of the manufacturing workforce in the UK is currently made up of employees between the age of 50 and state pension age, and many sector sectors, such as food and drink, employ a broadly aging workforce. Hence, issues of succession planning and skills gap analysis are always of interest to HR professionals and business leaders plotting strategic direction for their organisations. However, the full impact of the government intention, confirmed on January 13, to phase out the Default Retirement Age (DRA) between April 6 and October 1 this year, may not yet have been realised by scores of manufacturing employers.
The many facets of policy and practice which may be affected by the abolition of the DRA touch on issues of culture, communication, strategy and legal vulnerability. Gemma Taylor, solicitor and principle advisor with the manufacturers’ organisation EEF, explains why the changes in employment legislation are concerning some of their members and how employers across the board need to prepare: “Our view is that the majority of our members would very much like to retain the default retirement age but we recognise that the government has made it up its mind and the abolition will go ahead. Until January, however, there was still a question of how and when.
“EEF strongly advised that the lifting of the DRA be delayed; the main reason being that the squeezed timetable does not give employers anywhere near enough time to prepare and indicates that the government has not considered the costs implied.
“One particular issue we are concerned about is the cost of benefits and insurance currently provided by a significant proportion of our membership. At the moment, employers cost the provision of these benefits, such as permanent health insurance and life assurance on the basis that employees will retire at 65 and they will not have to pay the extremely high premiums that come into play after that age.” With the abolition of the DRA this will no longer be the case but employers will be bound by discrimination law to provide the same benefits to their entire workforce. Taylor says the cost of this cannot be quantified currently.
Another widespread concern among EEF members has been expressed in connection with the mounting administration and training needed for increased levels of performance management.
Taylor elaborates: “Being better prepared and able to deal with declining performance in older workers without the natural backstop of the DRA is a real concern among our members. There are a number of perspectives on this; firstly employers are going to have to feel confident that – if they have to – they will be able to exit an older worker safely on grounds of declining performance. Although the law does allow for this, in reality the bar set by the courts for providing the necessary evidence to support this kind of dismissal is extremely high.” Of course, good employers will already monitor performance but Taylor asserts many will need to extend their performance policies and seriously re-consider how they operate them due to an unfortunate reality that management often have a fear of tackling performance management. Taylor says: “Having a performance conversation with someone can be difficult; it becomes more difficult when that person has previously had excellent performance and is a highly respected and long serving member of the workforce. We should not underestimate this cultural element. There needs to be time for employers to prepare and train management but we also need recognition from government that this incurs a cost.”
Plans and paybacks
Blatchford, a medical devices manufacturer offering products and clinical services in prosthetics and orthotics, is just one of the many EEF member organisations which has voiced concerns like those referred to above. Isobel Pearce, head of HR at Blatchford, gives more detail on why the company is so dissatisfied with government plans for the DRA: “We have an aging workforce and already experience difficulty with succession planning to ensure that the skills and knowledge held by our longest serving employees are transferred and retained by the business.
With the end of the DRA this challenge will be magnified. Pearce explains: “We won’t necessarily know when someone is planning to retire. Our industry is very technical and highly specialised and we feel it takes several years to prepare an incoming employee to take over an experienced position to the level that we require. For example, we have one employee in his late fifties who we have brought in a successor for now in order to train and transfer knowledge over the coming years. We would not be able to do this without the DRA, as we wouldn’t know when to start the succession process and we would not be able to offer the person we brought in any idea of their career prospects. Furthermore, without knowing when a current experienced employee will retire, employment costs could be doubled up for a longer and unpredictable amount of time.
Blatchford are also concerned about the possible difficulty of implementing more rigorous performance management following the abolition of the DRA. It is possible the need will arise for disciplinary procedures in connection with emerging performance issues and Pearce reflects: “It is difficult to imagine a dignified way of managing this scenario.
“Some may say that this will not be a significant challenge because not many workers will want to continue beyond 65. But the fact is that when discussing retirement plans with our employees we frequently hear them voice concerns that their feeling of self worth may diminish after retirement or that they will become bored and increasing we hear that although they would like to retire financial pressures mean that they feel they must keep working. In addition there is the possibility that an employee with ill health may choose to continue working until the company intervenes with a decision that they are no longer able to continue in their role. The whole situation simply puts more time consuming bureaucratic and auditing pressure on HR departments and could put employers like Blatchford, which values all its employees very highly, in some uncomfortable nowin situations.
“Other practical considerations which concern us are the potential rising cost of healthcare provisions, death in service payments, and the cost of having to make more reasonable adjustments to the workplace for employees with age related disabilities. Without wanting to cast stereotypes it cannot be denied that as we get older degenerative conditions like arthritis and sight problems become more common. Under discrimination law employers have to make allowances for these kinds of disabilities through actions like arranging flexible working, reducing shift hours or modifying equipment and tools, to name but a few.
Pearce openly admits that the above concerns will not be the norm and stresses: “We have many brilliant workers in their sixties who are in excellent health and continue to be motivated and perform to the highest standards in their roles while also showing a genuine willingness to pass their knowledge to junior members. But, there will undoubtedly be rising instances of the scenarios I described earlier and it will be difficult for employers to work out ways of managing fairly and consistently across these individual cases without further guidance from government.” Blatchford were among approximately 500 EEF member organisations which submitted consultations to government on how to manage the phasing out of the DRA. Sixty eight percent of these organisations advised retaining the DRA, at least for the time being.
Not all manufacturers seem to share Blatchford’s concerns however. Kevin Parkin, managing director of heavy engineering firm Davy Markham, welcomes the fact that the change in legislation will put pressure on employers to follow best practice performance management and communicate on a more sensitive individual basis with employees about their work plans. “We remain close to our employees and I think that is the key to this – good communication in both directions. Managers have to understand what people’s personal aspirations are and what their work-life balance looks like. If you take care to understand this for everyone in the company then you will have a good picture of what is required in terms of workforce planning.”
Davy Markham’s 200 employees, including 100 shop floor workers, have an average age of around 47. However, this was not the case just five years ago, when Parkin remembers the company had a far higher age demographic and was becoming desperately short of skills as experienced employees retired. Having come through this skills crisis by investing heavily in a comprehensive apprenticeship programme, Parkin maintains that the abolition of the DRA should be seen as a positive step towards aiding industry skills retention “It is a shame that you lose skills because people are forced to retire. I welcome the opportunity to keep people on after the retirement age when they still have a lot to offer. People don’t just go from being capable of working to being incapable of working over night.” Commenting on the suggestion that younger workers might be demotivated by the idea that their career progression was being blocked by the retention of older employees, Parkin says: “I do not see this as a problem at all. We make sure that people progress when and where opportunities arise and we recruit internally first.”
However, despite Parkin’s confidence, union members are raising concerns over career progression challenges. Roger Jeary, director of research for the manufacturing arm of Unite the Union, asserts that: “Many of our members, both old and young, have raised that this [the abolition of the DRA] might be a potential way of blocking promotion in the workplace and, even more importantly perhaps, stopping people getting into the workplace. It really does need to be considered that the numbers of apprentices and the number of young people being employed will presumably be affected if people stay beyond the end of the traditional working lifetime. Employers have a finite number of people they need.” This seems to openly conflict with government support for apprenticeship schemes and to undermine an already dire youth unemployment situation in the UK.
Having said this, it must be taken into account that the UK’s age demographic is steadily rising and that the fastest declining group of economically active individuals is that for citizens aged 18-24. Furthermore government has recognised the need to up-skill and retrain the existing UK workforce to prepare them for a longer working life in a world where skills requirements are advancing apace. One of the few areas of skills funding protected from the rigors of the CSR was the provision of adult apprenticeships where government has committed to supporting 75,000 placements over the next four years.
How the UK manufacturing sector, which currently employs a mere 3.5% of its employees beyond 65 compared to 6.7% in health and 5.4% in retail, will respond to the prospects of having more older workers is unclear. It has been suggested that the constraints of production line shift work and a high proportion of physical roles will make the challenge harder for manufacturing but in fact such claims are difficult to substantiate and most employers are willing to innovate for flexible working solutions.
What is without doubt however is that age old assumptions about the manner in which we leave work are about to be fundamentally revised.