Retiring or staying on? The influence of government policy on older workers and their employers

Dr. Judith A. Davey explores what makes it easier for older workers to stay on and what makes it harder? 

The arguments for encouraging older people to remain longer in the paid workforce are strong, based on benefits for individuals, business, the economy and society as a whole. Longer lives and better health in later life provide opportunities for staying on. And there is considerable evidence that participation in meaningful and appropriate work is beneficial to the physical, psychological and financial wellbeing of older people. Demographic trends suggest that labour and skills shortages will become more pressing in the future as younger people entering the workforce do not balance the numbers retiring. Businesses will benefit if they understand the implications of an ageing workforce and the competition for skilled workers, which is already emerging. Older workers represent a valuable and often untapped source of increased productivity. Also, there are social benefits from having an economically active older population. It will contribute to economic growth and the maintenance of living standards and also, through taxation, help to meet the costs of an ageing population. 

So here is the question: What makes it easier for older workers to stay on and what makes it harder? In my previous article for Management magazine I talked about some issues for employers – the importance of flexibility in work practices; management of mixed-age workforces; having “conversations’ about retirement and staying on. And, above all, fostering a business culture which values older workers are appreciates their wisdom, loyalty and contribution. Much depends on the work environment and the policies and practices of employers. But older people’s choices about either remaining in work or retirement are also influenced by factors in the wider environment, and, in this article, I will look at the part played by government policies, drawing on the views of NZIM members as employers and the views of spokespeople from professional, commercial, trade union and public sector organisations involved in labour market issues[1].

 

No work-test for New ZealandSuperannuation

In contrast to the situation in many developed countries, New Zealanders can receive full NZS at age 65 and still continue in paid work, paying the appropriate marginal tax rate for their combined income. In Australia the age pension is abated dollar for dollar on earnings over $A10,000 and this acts as a disincentive to continuing paid work. 

A few of my respondents didn’t know it was possible to continue in paid work while receiving NZS. But, when asked for their views on this policy, they presented two main standpoints, some people mentioning both. On the one hand was the equity argument, supporting current settings, on the basis that people had earned NZS through a lifetime of contribution and paying taxes. There were comparisons with welfare benefits. “It depends how you see NZS. If it is a pension, perhaps there is an argument for a means test. If it is like a super fund with contributions – then you should be entitled whether working or not”. To withhold NZS would discourage people from continuing in paid work when they might be keen to do so. From the employers’ point of view this could remove valued workers. “It doesn’t adversely affect people who want to keep in work. It would turn people off work if they lost their pension. And we need people to work as the workforce is shrinking.” 

This represents considerable support for the present system. Being able to receive full NZS allows people to work part-time, combining both sources of income to support a comfortable lifestyle. “In this way the present setting helps to ease the transition from work to retirement”. “The way to go is universal with tax. It is simple, with low compliance costs; it allows choice, flexibility and contribution to the community”. 

But many respondents saw some need for change, based on doubts about the sustainability and high fiscal cost of NZS. Many were not specific about what is needed, but some suggested delayed receipt of NZS in exchange for a higher rate – as has been suggested in the policy arena – or some form of abatement. Respondents accepted that making wholesale changes to NZS would be difficult and politically risky.  

The group who were against the present settings also appealed to principles of equity. They supported either means-testing or withholding NZS from people in full-time paid work.  One expressed a personal dilemma.  “I am uncomfortable – I feel it is double dipping. My conscience says should I not sign up for NZS. Why not? I don’t know. It could be means tested, but I have worked all my life for this – is it my right? But there is a huge bill coming up which will be a load on the country”.

 

No compulsory retirement

Despite the fact that a “retirement age” is regularly referred to in the media and everyday speech, there is no compulsory retirement in New Zealand. It was banned by legislation which became effective in February 1999. This was supported by the New Zealand Employers Federation – “The demise of compulsory retirement should not be seen as a difficulty to be surmounted but as an opportunity to think again about how the process of retirement can be managed.” 

I asked my respondents if the absence of a compulsory retirement age was good for business and how its effects would compare with having a fixed age. The general opinion was against compulsion. The responses centred around two arguments. Firstly, that it was unjust to force people to retire when they wished to continue to work and when their employers wanted to keep them. A return to compulsory retirement was described as retrograde, arbitrary, irresponsible, unethical and a disaster. 

Secondly, there was the question of how employers could deal with underperforming older workers. Previously, a fixed retirement age allowed them to be exited without question – “HR used to say – wait till they retire”. Now the option is not available and this was seen as a disadvantage by some employers.Instead they must adopt performance management with open and frank discussions about how the needs and aspirations of both employers and employees can be met. And the respondents acknowledge that these can be “tricky” and “risky”.

 

Age of eligibility

The age of eligibility for NZS is clearly a major, if not the most important, policy lever available to government in terms of extending workforce participation. Over the period when eligibility for NZS was raised from age 60 to 64, participation rates in this age group doubled, from 34% for men in 1991 to 65% in 2001, with the corresponding figures for women rising from 16% to 44% (Household Labour Force Survey data). 

There was again division among the respondents in their views of whether the age of eligibility should be raised. Some thought it was marginal to business concerns and only one factor in decisions about retirement. But others acknowledged the influence of the age of eligibility, which is often seen as a signal for retirement, linked to the perpetuating of the “retirement age” myth.” 

Some respondents were against raising the age as it would force older people to work, sometimes unwillingly. ” There always will be people who don’t want to keep working for physical and mental reasons. It can’t be good for employers if the age goes up and there are disengaged workers – creating a health and safety risk”. Despite such concerns, many people felt that a rise in the NZS age was inevitable, based on population ageing trends and the cost of retirement income support.

 

Age discrimination legislation

Section 22 of the Human Rights Act (HRA)forbids employers from discriminating against suitably qualified job applicants on a number of grounds including age. Its provisions apply to all aspect of employment – recruitment, selection, remuneration, training, promoting, transfers, retirement and termination. 

I asked my respondents if they thought this legislation was working. “Yes, but..” sums up the response. There was a general impression that much age discrimination is not overt and may even be unrecognised.  “Sometimes people don’t know they are doing it. They employ people like themselves who they are comfortable with”.  It makes age discrimination much more difficult to combat, especially through legal means. Sometimes it is unclear whether there is real age discrimination or whether decisions made by employers simply reflect the shortcomings of older workersin terms of their physical and mental capacities, outdated skills and lack of ability with new technology. “When you can’t do things because of your age, the individual might see this as discrimination”. “Stereotypes exist for a reason, as a result of people’s negative experiences”. It is difficult to see what proportion of this reflects preconceptions about older people, as opposed to genuine performance concerns. 

There was some feeling that the HRA is too easy to get around. But if penalties were increased; “this would send the behaviour underground; it is very complex cultural and social behaviour”. Respondents agreed that legislation is needed as a signal that age discrimination is not to be tolerated. “We need traffic rules to deal with worst cases, but law is not a solution”. Is seems clear that ageism in the workplace is an extension of attitudes in the wider population and may need to be attacked on a wider basis.   

 

Legislation on flexible working hours

The Employment Relations (Flexible Working Arrangements) Amendment Act 2007 added Part 6AA to the Employment Relations Act 2000, to provide employees responsible for the care of any person with the right to request flexible working arrangements (that is, a variation to their hours, days or place of work).  There is no requirement for employers to agree to such requests. The amendment was later reviewed, considering whether the provisions should extend to all employees. This proposal is still under consideration. 

Surveys carried out in the process of the review by the Department of Labour found that flexible work arrangements are common in many workplaces throughout New Zealand without recourse to the Act. The conclusion was that the law had not changed the widespread practice in which employers and employees develop formal and informal arrangements suited to their needs and extending beyond caring responsibilities. This was borne out by my interviews. Most of the employers offer flexible working conditions, sometimes to all staff, acknowledging that they might not be appropriate in all jobs, such as assembly line, retail, reception and hospital work. and there may be limits for staff who are not performing and for younger workers who require supervision. 

The unanimous opinion was that workforce flexibility, not only for older workers, could certainly be beneficial for business. “(Flexibility) pays a dividend in employee engagement, loyalty, being seen as a good employer and an employer of choice. It reflects the diversity of customers. The challenge is to get employers to see this.”The Department of Labour’s surveys also found evidence of improved productivity and profitability, staff retention, recruitment and morale where flexible working hours were available. The fact that fewer than a third of employers in the surveys were aware of the flexible work legislation suggests that business reasons are the main motivators.

 

How effective is government action?

None of the policy settings mentioned here are directly aimed at encouraging older people to extend paid work participation and delay retirement. Much more effort is being applies to these issues by governments overseas, notably our neighbour Australia. This is despite calls by the New Zealand Human Rights Commission to: “urgently adopt a national programmatic approach to managing ageing workforce issues” and “an active integrated programme on ageing workers across the public and private sectors.” 

In view of these calls and similar media comments, I asked my respondents “Do you think that the government is tackling the issue of workforce ageing effectively? “ The general consensus was that they are not, although many admitted that they do not know. Respondents said; “Government is in the mindset that it is too hard to handle”; “(no action) at all compared to other western societies who are desperately thinking about it”. “Employment of older people is an issue for New Zealand – why don’t we put more effort into it?” That is a good question.

 

 

 

Author:

Dr. Judith A. Davey is Senior Research Associate, Institute of Governance and Policy Studies, Victoria University of Wellington and a Former Director of the New Zealand Institute for Research on Ageing (NZiRA).

Judith welcomes your feedback on this topic – please contact Judith on Phone:+64 4 499 0779 or Email: [email protected]



[1]This research was part of a project called Making Active Ageing a Reality, undertaken through the University of Waikato, funded by the Ministry of Business, Innovation and Employment.

 

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