In modern industrial society, the life cycle of a person traditionally has included a number of stages, including growing up, becoming educated (possibly achieving a university degree or vocational training), working and retiring. However, the last stage – retirement – is mostly an invention of the last 100 years. When it started the expectation was that the retirement period would be short. Traditional defined benefit (DB) plans were designed to encourage retirement at specific ages – and sometimes mandate it – in contrast to defined contribution (DC) plans, which were not designed to encourage retirement at a specific age.

Owing to the development of stronger economies, better sanitation and improvement in medicine, the average lifespan has increased rapidly, and we have now moved to a time when retirement can last 20 to 30 years or more. Retirement systems in many countries are shifting from DB to DC plans. At the same time, it appears that attitudes about retirement may be changing, and therefore companies should factor this evolution into their long-term benefit planning.

The global demographic picture

Most OECD (Organization for Economic Co-operation and Development) countries have effective retirement ages in the range of 60 to 65 years. The extremes are Mexico, with a retirement age of 73.0 for men and age 75.0 for women, and France, with ages 58.7 for men and 59.5 for women.⁽¹⁾

Citizens in all developed countries are living longer, and life spans are continuing to increase. There have already been changes in labor force participation by older persons.
 
Older workers (age 55-64) as a percentage of the population at those ages ⁽²⁾

These data show that there has already been change in many locations and that the level of labor force participation at these ages varies a great deal between countries. Generally, countries with historically higher participation rates experienced much less change. Australia, a country with a large change, moved away from traditional DB plans during this period.

Alongside this labor participation picture, the populations of many countries are aging rapidly, and the configuration of communities, workplaces and families will be very different. This trend will continue, and over the next 25 years, the change will be dramatic. The United Nations Department of Economic and Social Affairs, in commenting on the global situation, states that:

• “Population ageing is unprecedented, without parallel in human history – and the twenty-first century will witness even more rapid ageing than did the century just past."
  
• "Population ageing is pervasive, a global phenomenon affecting every man, woman and child – but countries are at very different stages of the process, and the pace of change differs greatly.  Countries that started the process later will have less time to adjust."

A different kind of retirement

As we think about retirement in the future, we need to think about a different kind of retirement. Many people are moving from full-time work to a total exit from the labor force in steps or stages – that is, they are using some type of phased retirement. This can mean moving into a different role, going to a reduced work schedule or changing location. These changes can happen in combination. In some cases, people are able to collect pensions (or Social Security) and continue to work on a reduced hourly basis. As we think about this different type of retirement, we also need to think about working – or some working – to much higher ages. 

The economic crisis has increased attention and sharpened the focus on this topic, as workers in many sectors have planned or are planning to postpone their retirements. In the US, 25% of workers in 2009 and 24% in 2010 reported that they had postponed their expected retirement age in the last 12 months.⁽³⁾  

Innovation

Employers, special organizations and policymakers have been innovating to help promote new work options. Here are some examples:

Re-employment of those retired from an organization:

• Rather than increase the official retirement age, Singapore's legislation requires employers to offer re-employment to workers for another three years until age 65, though not necessarily in the same job or at the same pay. Singapore People for Jobs Traineeship Programme subsidizes employers who hire workers aged 40 or older by covering 50% of their salaries for the first six months, up to a maximum of US$2,000 a month. ⁽⁴⁾
  
• Rehiring retirees is fairly common in the US. The Southern Company, a utility company, uses a retiree pool in which retirees are asked to work when there are extra demands on the company caused by certain events, such as major storms. While many case studies describe the use of retiree pools for professional and office jobs, this example covers blue-collar jobs.*
  
• The Aerospace Corporation is an independent, not-for-profit company that provides technical analyses and assessments of national security. The organization has a retiree casual program in which retired engineers are used to work on certain projects. About 600 retirees are signed up for the program and approximately 300 may be working at any one time.*

Countries are creating new opportunities for older people:

• Japan’s network of Silver Human Resource Centers helps individuals aged 60 or over find temporary, contract or part-time work opportunities. 
   
• Germany began subsidizing the part-time employment of older workers, which has increased workforce participation among workers aged 55-64 from 37.5% in 2000 to 45.4% in 2005. 
   
• The United Kingdom’s “New Deal 50+” programme offers £1,500 training grants and wage supplements of £40 and £60 per week.

Companies are tailoring opportunities to the interests and needs of older people:

• Some organizations offer “snowbird” programs allowing employees to work at different locations during different parts of the year. Kelly Services, a temporary employment service, offers individuals a chance to seek work worldwide at locations people choose. Examples of organizations with such programs include Home Depot, CVS and Walgreens. These are not retiree rehire programs, but these are organizations that are likely to have retirees in them.*
    
• The Retirement Living Information Center http://www.retirementliving.com/ identifies a number of sources that provide information on specific resources available for finding jobs and other opportunities for older people. It also includes educational and career-support materials.

Companies are creating new categories of employment:

• First Horizon, a financial services company in the US, offers full-time and part-time employees flextime, compressed work schedules, job sharing, telecommuting and a formal phased retirement program. In addition, when personal issues arise, employees with at least one year of service can work with their leaders to find scheduling solutions. Several First Horizon employees have reduced their schedules to 20–32 hours per week and have continued to receive full-time benefits. First Horizon’s more than 1,400 retirees can take advantage of work opportunities in the company, including temporary assignments, consulting and contract work, telecommuting, and part- and full-time positions. ⁽⁵⁾ 
   
• AARP has established a National Employer Team in the US, identifying companies that are seeking seniors to work for them, and providing information about these companies on its website.

A number of countries are also making policy reforms to remove work disincentives and to increase flexibility in work-retirement decisions.  Common elements of these reforms include reductions in pension replacement rates, an increase in official early retirement ages, and a change in adjustments for early and late retirement. For example, the Pension Protection Act in the US has lifted a previous ban on companies with DB plans paying benefits before an employee has terminated employment or reached the normal retirement age, thereby making gradual retirement an easier option.

Employers must evolve as the work world changes

The world is evolving rapidly in response to aging, and employers will need to adapt to capitalize on the new retirement ideas for their own businesses. For a start, here are some recommended actions:

• Analyze existing talent and talent needs, identifying expected gaps and which employees are in critical jobs. 
   
• Assess employee benefit and compensation programs to determine what incentives (or disincentives) are embedded and whether they support future talent needs. 
   
• Identify changes needed to better align programs to talent needs.
  
• Realign employment options and benefits to align with talent needs. 
   
• Work with management throughout the organization to make sure that culture is open to the new environment.

As the nature of retirement is continually changing, how retirement will look in 30 years' time is not clear. However, here are some key questions for employers to think about given the new demographics and the emerging society as it is affected by the actions of governments, employers and individuals:

• What will retirement mean, and how will it be defined? 
   
• Do retirement ages need to increase, and if so, by how much? 
   
• What kind of benefits will employers offer for retirement, and how well will they work? Are programs that provide for earning benefits over a 30-to-40-year workspan and collecting them over the next 30 years reasonable? 
   
• Where benefits are provided in a DC plan, can an employer provide incentives to encourage/discourage retirement at a specific point in time? 
   
• What will be the expectations about work at higher ages? What encouragements will there be to retire at specific ages, and how do they link to benefit plans? 
   
• How do employers (and society) encourage individuals to save for their own retirement?  What can be expected on a voluntary basis? 
   
• How will families be involved in supporting their senior members? What alternatives will there be for people without family members?

Workforce and retirement changes are already in the making. Responding to these changes is not just a matter of looking ahead 30 years to judge which needs a current retirement plan should be meeting, because the trends are being established now. Keeping up with the trends and relating them to company policies for benefits are crucial for success in such a profound and important area. 

Support resources and advocates for change

The World Economic Forum’s report  “Transforming Pensions and Health Care in a Rapidly Ageing World” is an excellent resource for thinking about the future. This report focuses on potential employer strategies and identifies the opportunity to “retain experienced workers by offering more flexible working arrangements and gradual retirement.” 

*Anna Rappaport 2008 testimony to ERISA Advisory Council on phased retirement

Notes:

1. Average effective age of retirement, 2002-2007, OECD (downloaded on 3/31/2010)

2. OECD Social Policies Statistics, Employment to Population Ratios, updated 10/2/2009

3.Employee Benefit Research Institute, 2010 Retirement Confidence Study, Figure 28

4.World Economic Forum, with Mercer and the OECD, Transforming Pensions and Healthcare in a Rapidly Aging World, page 21

5.From AARP 2009 Best Employers for Older Workers Competition organizational write-ups