The International Longevity Centre UK (ILC-UK) recently published a research and discussion paper, The Future of Retirement, on the factors that influence how individual retirement decisions, and how current socio-economic trends may alter retirement paths in the future¹.

The new government is proceeding swiftly with plans to raise state pension age (SPA) faster than its predecessor planned, and to abolish the default retirement age (DRA), which Labour established in 2006. Fiscal considerations lie beyond the SPA decision, while both the Conservatives and the Liberal Democrats have argued that the DRA is discriminatory. However, both changes aim to encourage people to stay in employment for longer. However, it remains the case that most people do not retire at SPA; similarly, the huge majority of people retire before becoming affected by the DRA. The Future of Retirement argues that a much wider range of factors impact on retirement decisions, and if the government is to avoid inequitable outcomes, policy must be based on an analysis on how working lives can be extended in practice.

The UK’s average retirement age fell steadily throughout the post-war era until the mid-1990s, when it began to rise to 64.5 (men) and 62.4 (women) (ONS, 2009). Given the difficulty of pinpointing labour market withdrawals, however, this account is not undisputed. Sepideh Arkani and Orla Gough (2007), for example, argue that average retirement age rose sharply in the early-1990s, but has since fallen back slightly. At the macro-level, the long fall has been explained with reference to two major factors. First, the pull: the growth of generous and guaranteed defined benefit occupational schemes (‘final salary’ schemes), particularly in the public sector, meant many people were able to retire early without adverse financial consequences. And second, the push: economic change, chiefly the decline of manufacturing, increasingly led to de facto early retirement for workers made redundant in later life (see Meadows, 2003).

At the micro-level, however, the picture becomes far muddier. The main reason individuals cite for early retirement is ill-health. Job quality is also a major factor for many people (Siegrist et al, 2007). It is clear that financial incentives play a part. It seems that unless ill-health and labour market conditions intervene, lower-skilled workers with less generous pensions coverage will work for longer due to financial compulsion (Arkani and Gough, 2007). However, it is not the case that more affluent workers retire early. Morten Blekesaune et al (2008) found that employees with high professional standing were likely to work for longer, perhaps due to the status and satisfaction derived from their work. As such, a number of current socio-economic trends are likely to impact on retirement decisions. The decline of defined benefit pensions in favour of defined contribution (or ‘money purchase’) schemes alter the financial incentive structure regarding retirement, but also tend to be much less generous. An ageing society has also created a large growth in care needs among the ‘oldest old’: caring responsibilities greatly problematise individuals’ capacity to work in later life.

There is increasing interest among researchers in the prospects for ‘gradual retirement’ (see Vickerstaff, 2007). Ostensibly, gradual retirement entails a move towards more flexible employment, although this could take many forms. The concept of ‘downshifting’ is important. This generally involves taking on a position within the same organisation, as you approach retirement, which involves fewer hours or less responsibility. It represents both a way of promoting a smooth transition to retirement and a measure to increase the participation levels of older workers in the labour market. Evidence on the success of downsizing is, however, fairly mixed. The practice works particularly well in Japan, whereby older workers often move into employment with subsidiary firms – yet it also associated to some extent with discriminatory practices against older workers. There is also the possibility of workers moving into self-employment or ‘bridge’ employment at the end of their career, but before full retirement. However, Stephen Lissenburgh and Deborah Smeaton (2003) report that there are ‘two nations’ within the older labour market in this regard: higher-skilled workers who move into part-time consultancy – often working for their previous employer – and lower-skilled workers taking on low-quality, home-based and ad hoc work simply to make ends meet before becoming entitled to state benefits.

The paper recommends that, if the government is to succeed in extending working lives and increasing SPA further without creating inequitable outcomes, it needs to place more emphasis on preventative healthcare, job quality, support for people with care responsibilities, and the creation of transferable skills among the older workforce. Enabling gradual retirement may be the key. As the default retirement age is abolished, there needs to be more encouragement for employers to offer downshifting options for their staff. Furthermore, people should be able to draw down their pension entitlements in more flexible ways. While this option is available in many final salary schemes, it remains wholly absent within the provision of state pensions.

¹The Future of Retirement is available at http://ilcuk.info/files/pdf_pdf_134.pdf.

Contact craigberry@ilcuk.org.uk for more information.

References
Arkani, S. & Gough, O. (2007). ‘The impact of occupational pensions on retirement age’. Journal of Social Policy, 36(2), 297-318.

Blekesaune, M. et al (2008) Lifecourse events and later-life employment. London: The Stationery Office.

Lissenburgh, S. and Smeaton, D. (2003) The role of flexible employment for older workers. York: Joseph Rowntree Foundation.

Meadows, P. (2003) Retirement ages in the UK. London: The Stationery Office.

ONS (2009) Pension trends: The labour market and retirement. ONS. Available at http://www.statistics.gov.uk/pensiontrends/.

Siegrist, J. et al (2007). ‘Quality of work, well-being, and intended early retirement of older workers’. European Journal of Public Health, 17(1), 62-68.

Vickerstaff, S. et al (2005). Happy retirement? York: Joseph Rowntree Foundation.