Sunday, July 04, 2004
Stuck for longer on the work treadmill
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

In these days of high employment and greater longevity, should we routinely expect, indeed want, to work longer? Or should one of the economic benefits of rising prosperity be the ability to retire early and enjoy the fruits of our labours?

The debate about retirement age, which has been rumbling for some time, is now in the open. A leaked cabinet letter reported in this newspaper last month revealed that Patricia Hewitt, the trade and industry secretary, was pressing for an early government decision on changing the mandatory retirement age in company pension schemes.

That decision, it seems, comes down to a straight choice between raising the “default” retirement age to 70 — to apply even if not specified in employment contracts — or abolishing normal retirement age altogether. The latter applies, interestingly, in three “Anglo-Saxon” economies: America, Australia and New Zealand as well as some Canadian provinces.

Yet the pressure for change comes from Europe. The government is responding to the EU’s employment directive, which will make age discrimination in the workplace illegal by October 1, 2006. And one form of discrimination, according to Britain’s interpretation of the directive, is mandatory retirement age.

This is not a debate about the state pension age. Under previously agreed plans, that will remain at 65 for men, and rise from the present 60 to 65 for women by 2020. Andrew Smith, the work and pensions secretary, has announced a lump-sum incentive of up to £30,000 for those who defer taking their state pension until 70. But that will be a matter of choice; otherwise the status quo continues.

On the face of it, raising or abolishing normal retirement ages is sensible, whether or not it comes from an EU directive. When 65 became the norm early in the last century, most men did not live long after.

More recently, people have been retiring earlier but living longer. That was fine when pension funds were generating big surpluses and high unemployment, particularly among the young, was the pressing economic and political problem.

Now neither is true and deferring retirement is one way of compensating for the effects of an ageing population and the decline in the ratio of workers to dependants. We are not, it seems, saving enough. Revised figures show that contributions to occupational schemes were running at £27 billion in 2002, £12 billion down on the previous estimate.

So why is there so much hostility? Employers, represented by bodies such as the Engineering Employers Federation (EEF), warn that any change will harm business. “Costs will rise, management time will be diverted from growing the business and employers may be forced to retain older workers who are not necessarily best for the job because of fear of expensive litigation,” the EEF says.

Meanwhile, considering this is supposed to bring new rights for employees, the unions’ response has been curmudgeonly. The TUC says it could mean that people will have to work until they “literally drop”, dying in the saddle before they receive a company pension.

There’s another argument against change. Plenty of age discrimination against those aged 50 and over exists in the job market, as my mailbag attests, despite a rise in employment in this age group of more than 1m since 1997.

The law of unintended consequences could mean that discrimination against people in this age group will increase, not decrease. How many employers would want to take on workers in their late fifties, knowing they will never be able to pension them off?

Research for the DTI by Peter Urwin of the University of Westminster suggests that legislation is unlikely to help older employees. They suffer from a poor image among employers, are more likely to have long-term sickness and are often not as well qualified as younger workers.

The idea that there are millions out there wanting to work beyond retirement also appears to be false. While numbers working beyond 65 (men) and 60 (women) have increased, the total for men has just returned to its early-1990s level. Half of those who stay in work are self-employed.

Rising employment among 60-plus women seems to be happening in anticipation of the state pension being equalised at age 65. Some firms have already increased normal retirement age for women.

Another DTI research paper, by the independent economist Pamela Meadows, finds “there is little evidence of a current pent-up demand for working beyond the normal retirement age”. Most people retire before they get to the official age.

But Meadows also rejects one employers’ argument — that older workers are less productive. For most jobs performance does not deteriorate with age, at least up to 70.

So what’s the answer? Neither option favoured by ministers seems sensible. A default retirement age of 70 would not be welcomed by employers or employees. Abolishing the mandatory retirement age altogether could lead to a free-for-all and would be seen by firms as a big burden.

It is far better to keep 65 as the default retirement age (if 70 is legally acceptable, why not 65?). At the same time, business should move to make retirement more flexible, with workers able to stay on by mutual agreement. A gradual winding-down of working hours in the run-up to a later average age of retirement should become the norm.

A flexible decade of retirement (60-70) would allow many more to stay on until 70 without feeling they were being forced to stay on the treadmill. Such matters are far better handled by rational negotiation than by directives and legislation. Let’s hope ministers are sensible about it.

PS Strange that the BBC Today programme chose to illustrate new research on the north-south divide by using Corby in Northamptonshire as an example of northern deprivation. Corby, sadly not the home of the eponymous trouser press, is more south than north. Mind you, news reports on the research may also have been confusing — London is the powerful economic magnet of our times but Hackney and Tower Hamlets, two of its boroughs, are the poorest in the country.

The research, People and Places: A 2001 Census Atlas of the UK, by Sheffield University academics Daniel Dorling and Bethan Thomas, describes London’s expansion as “voracious”. Its commuters now travel from as far north as Leicester and as far west as Plymouth. Those parts outside its catchment area — in other words the north of England — are sinking “demographically, socially and economically”.

Is this right? My book North and South — as opposed to Elizabeth Gaskell’s — is a modern, if now out of print, classic. Its thesis was a widening north-south divide at a time when politicians denied it.

Things may, however, have moved on a little. It is now generally agreed that prosperity differences within regions are greater than those between them; hence the problems of the poor of Tower Hamlets, who live cheek-by-jowl with the bankers of Canary Wharf.

The other change is in unemployment. Labour Force Survey data show that London, with a 6.9% rate, has the highest unemployment in the country. The gap between the northeast (5.2%) and the southeast (3.9%) is smaller than for a very long time.

The mention of Corby, however, brings me to a new thought. The search for an alternative to my skip index has brought many suggestions. Reader Steve Groom thinks he has the answer: Northampton. It apparently tracks the rise and fall of the national economy perfectly, so we should pay close attention to it. Is he right? Are there other cities or towns that better fit the bill?

From The Sunday Times, July 4 2004

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