Will Factor 55 be as big a challenge to workforce planning as anticipated?

On the back of the new pension rules, the age of 55 is set to become a huge milestone in people’s working lives, which is why we coined the term ‘Factor 55’, to reflect the retirement dilemma that this age group will now face.

But it’s not just employees who will face such predicaments. Employers are likely to experience challenges as well, particularly around workforce planning.

Two primary concerns, which have very different impacts, are discussed below.

Firstly, there are ongoing concerns across the labour market that valuable skilled workers retiring early, working more flexibly, or cutting back their hours in light of the reforms will leave businesses dealing with a host of unfillable gaps in their workforce. Whilst it is too soon to know the true impact, businesses must ensure they adapt to these changes and challenges now, and plan effectively in order to protect themselves in the future.

It should be noted that such difficulties will only exacerbate the more general decline in the size of the working population. As reported in our Is 75 the new 65’ paper, in 2012, thanks to the ageing of the post war baby boomers, Europe reached a demographic tipping point.  From that moment, the working-age population had reached its peak and is now starting to decline. This is an issue that isn’t going away.

Employers can place themselves in a better light and support their employees by having transparent policies around flexible and part-time working so that those who would otherwise be leaving the workforce may find another way to ease themselves into retirement over a longer window.

That said, despite an overwhelming concern across the industry that the pension freedoms could lead to a mass exodus of older workers, our recent research actually found that the majority of people don’t feel the pension reforms will affect their retirement date. Further to this, nearly half of employees have so far done nothing as a result of the reforms. This suggests that individual reactions are likely to be diverse and predicting behaviours will be difficult.

At the other end of the spectrum there is a different challenge to employers: the ageing workforce. Historically low birth rates and increasing life expectancy mean that the working population is ageing fast. Combined with increased life expectancy, an economic downturn and stressed public finances, this means that the traditional idea of retirement is rapidly becoming untenable. Employees could have to work longer and their employers might need them to work longer. With these kind of changes comes a greater need for organisations to take action and adapt their pension policies and retirement guidance to the ever-changing wants and needs of the multi-generational workforce.  

In addition, offering a competitive retirement package allows employees to retire when they feel they are ready.  For companies that have loyal employees, who put in years of service, only to find that they can’t afford to retire until they are well past their state pension age, it may be a bitter pill to swallow.

The question remains: will the pension reforms create challenges for businesses over the next few years? The answer is yes and no. The outlook on retirement and pensions is constantly changing, but as long as organisations recognise this, adapt to it, and focus more on strategic workforce planning as a means to solve it, they can ensure that these changes have a significant and positive impact on an organisation, rather than a negative one.