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The Pensions Commission is due to publish its second report, including policy recommendations, on November 30. There have been many media reports that the Commission will recommend raising the pension eligibility age from 65 to 67 and simplifying the pension system. If so, these recommendations would be in line with those proposed by the OECD in its 2005 Economic Survey of the United Kingdom and in last year’s report on Ageing and Employment Policies: United Kingdom.
However, the OECD has also stressed that pension reform is only the beginning of the road to cope with the challenges faced by the UK as a result of population ageing. Living longer must mean working longer in order to sustain growth in living standards and adequate incomes in retirement. Thus, the following measures should be taken to both improve the financial rewards from working and to increase job opportunities for older workers:
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Simplify the pension system and encourage later retirement while ensuring adequate incomes in retirement: The OECD argued that the current two-tier State Pension system and the array of means-tested benefits are overly complex and may have adverse effects on incentives to work and save. It suggested that the simplest approach would be to provide a higher basic universal State Pension. It also suggested that this should be accompanied in the longer run by an increase in the State Pension Age since this would encourage greater labour market participation of older people and could help meet part of the cost of increasing the basic State Pension.
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Give more help to people with disabilities to remain in work: The UK continues to record a higher rate of people moving onto disability benefits than most other OECD countries. While recognising that past reforms have met with some success, additional measures should be taken to stem these inflows. To help people already on benefits return to work, the OECD recommends “activation” measures such as extensive rehabilitation programmes, work training, fostering of appropriate work opportunities and other types of training courses.
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Take measures to increase the willingness of employers to hire and retain older persons: The OECD urges the government to move forward with anti-age discrimination legislation, including the abolition of mandatory retirement ages unless objectively justified. It also recognises that there is a need to inform employers about the implications of such legislation while continuing to promote age diversity in the workforce.
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Strengthen the employability of older workers: According to the OECD, various aspects of the New Deal 50 plus programme could be enhanced, in particular, by increasing the transparency of the potential financial benefits available under New Deal 50 plus and by enhancing take-up of the training grant. It suggests that improved co-ordination among the various active labour market programmes on offer could also help improve outcomes for all but especially those at risk of long-term unemployment such as the older unemployed.
Background
Compared with many other OECD countries, the United Kingdom has been far from complacent in addressing the barriers to employment faced by older workers. For example, the government has sought to change employer attitudes through its Age Positive campaign and Code of Practice on Age Diversity in Employment. In terms of active labour market programmes, New Deal 50 plus and Experience Works are unique initiatives among OECD countries and were commended. The government is also supporting training through the Employer Training Pilots and various lifelong learning initiatives and skill-improvement programmes are available to help all workers, including older ones.
The government has not been acting alone. Non-governmental organisations such as Age Concern, the Employers Forum on Age and the Third Age Employment Network have made valuable contributions to the policy debate surrounding older workers. Trade unions, through the Union Learning Fund, are helping to promote training more generally.
Partly reflecting these measures as well as the recent strong performance of the UK economy, the proportion of people aged between 50 and 64 that work is higher in the UK than the averages of both the EU and the entire OECD area (Figure 1). Nonetheless, this ratio is higher still in Denmark, Iceland, Japan, New Zealand, Norway, Sweden, Switzerland and the United States, indicating that more can be done to improve employment prospects among older workers in the UK as well.
The share of older men who participate in the labour market, at 72%, is still around 7 percentage points lower than in the mid-1980s. And there is scope to bring the participation rates of older women further in line with those of older men. Moreover, many older workers withdraw from the labour market well before reaching the State Pension Age.
The OECD projects that unless there is a substantial increase in labour force participation, especially among older people, available labour resources will remain broadly stagnant in the UK over the next 50 years (Figure 2). This could lead to rising labour shortages and a pronounced slowdown in economic growth.
Further details concerning the OECD’s recommendations, together with background information on the UK’s pension system within an international context, can be found here. See also the PowerPoint presentation on pensions: How does the UK compare?
For further comment, journalists are invited to contact the head of the OECD’s Thematic Review of Ageing and Employment Policies, Mark Keese ([33] 1 45 24 87 94) or Peter Whiteford ([33] 1 45 24 90 41).
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