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18 Apr 2006 : Column 45WH—continued

 
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Retirement Age

12.30 pm

Mr. Mark Todd (South Derbyshire) (Lab): My interest in this subject was prompted by a visit paid to my constituency office by a 74-year-old gentleman, Mr Tomlinson. Until having an accident recently, he worked as a lorry driver. He was productively employed, earning good money, not claiming benefit and working while claiming his pension. His visit led me to explore some issues around working after what we generally accept as retirement age.

I want to touch on two general themes. The first is individual freedom—ensuring that people are genuinely free to choose for themselves whether to work after retirement age—and the second the economic functionality of encouraging people to work after 65. The Government will address the former in October, when they seek to implement the European Community directive on age discrimination.

On current projections, a quarter of the population will be over 65 by 2051. Life expectancy continues to increase, as does active life span. We are not just living longer; we are living actively longer. Evidence suggests that continuing work, whether paid or voluntary, can assist in prolonging the health of an individual in retirement. In any case, many older people seek additional income to supplement what they receive in their retirement. It makes very little sense for a workplace to dispose of the valuable skills that many older people have. Research commissioned by the Chartered Institute of Personnel and Development showed that employers placed particular weight on the reliability, commitment and—importantly, nowadays—customer services skills of older people. Simply putting those people out to pasture, with a big sign on them saying "Post-65", is a tremendous waste of economic skills.

Furthermore, the choice to work on after retirement age has substantial economic impacts on our country. Mr. Tomlinson is a case in point: at 74, he was paying income tax and national insurance as a worker, but now—after being injured—he is receiving housing benefit and pension credit. From being a net contributor to our society in general, he has become a net drawer on it, although admittedly he has contributed substantially to his entitlement to that receipt.

There are many obstacles to working beyond 65 being considered something that anyone can contemplate. I shall run through some and then attempt to deal with them. First, there is the issue of expectations. Surveys show that most people recognise that we are living longer, and are living actively longer. The difficulty is that they do not personalise that with regard to their behaviour and choices. Somehow, they do not believe that that will necessarily happen to them, although it might be happening to people they know. They feel that they are likely to face an earlier death and that they should prepare themselves for a quiet period of retirement after their working lives. That slightly gloomier view still seems prevalent.

We can do more to make people understand that working beyond retirement age is likely to be an enduring opportunity. For example, my father is 81 and still does active voluntary work. He regards himself as someone who looks after older people, although they
 
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are actually a lot younger than he is. I see that as one model of retirement. He does not earn money from his work, but it is an important part of the social contribution that people can make.

A second obstacle is that there is a good deal of rhetoric of the "work 'til we drop" kind, which is propagated by some newspapers. That was particularly the case when there was discussion about fixing a retirement age. The assumption is that Government policy is somehow forcing people into a position whereby they must work until they die and so will never claim retirement. I have to say that trade unions provided additional support for that view by highlighting the fact that some people die before they receive a pension. That is undoubtedly true. Nevertheless, the evidence is clear that there are people with valuable working skills who are available to work beyond that point in their lives, and who are willing to do so. I want to turn to some reasons why that does not necessarily happen.

There is a belief that if we encourage people to work after 65, a requirement to do so will gradually be built into the rules of company pension schemes, and that, effectively, people will say, "That's fine. We can expect people to work longer, which should mean that we save money on our pension schemes." My retort to that is that, in an increasingly informed society, a pension scheme is a valuable recruitment tool. Frankly, companies with pension schemes that sought to take advantage of those changes would place themselves at a disadvantage when putting forward their package of employment emoluments. I do not think that a likely response by companies to people working beyond retirement age, but nevertheless it is one argument that is presented as a possible barrier.

The other obstacle, to which I shall return, is the lack of either fiscal or benefit encouragement to a work choice after 65. We can do more on that.

Andrew Selous (South-West Bedfordshire) (Con): I have a constituent who is 65 and due to be retired against his wishes this June. His pension goes on until he is 72. Does the hon. Gentleman agree that it is quite outrageous for us to remove people from the workplace, irrespective of their ability to do their job, purely because of their age? We would not remove them because of the colour of their hair or eyes, so why because of their age?

Mr. Todd : I shall cover that point, and the hon. Gentleman will find that I entirely agree with what he says.

There is also the issue of companies compelling retirement at a particular age. In October, the Government are to take a step that I do not agree with, and there is evidence that some members of the Government do not agree with it either. There was a lively debate between the Department of Trade and Industry and the Department for Work and Pensions on the correct approach to allowing employers to continue to enforce a retirement age of 65. That is still seen by some people as a barrier to continuing to work.

Of course, there is also continuing prejudice against employing older workers. That has been shown to be declining, partly because the code of practice that the
 
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Government have promoted has been widely understood, although not widely enough, as only 37 per cent. of employers know that there is a proper code of practice for dealing with age discrimination. We have much ground to make up.

Next, there are poor employment practices. Older workers are not given proper advice on the interface between retirement and future working, and there is a lack of promotion of part-time opportunities to older workers. That would allow them to move gradually from full-time employment to retirement, using their skills valuably—often as mentors or by providing their specialist skills in a narrower time frame.

There is a great deal more to be done in terms of simply promoting better-quality employment practices among employers. Only 30 per cent. of employers offer employees part-time options in preparation for retirement, which is ridiculous. In the Norwich Union survey commissioned on the subject, 68 per cent. of respondents thought that they would move to part-time employment before retirement. However, 25 per cent. said that that would be determined by their behaviour at the time. The evidence is that if a relatively small number of employers offer that opportunity, many people who fully intend and wish to work part-time will not be given that opportunity.

Moving to my final point on this area of poor employment practice, there is very little monitoring of the age profile of employees. A major difficulty is the fact that employers do not properly understand their work forces. They are not able to analyse what proportion of their employees is coming towards retirement or to devise sensible policies to deal with that.

Steps have already been taken. I have referred to the code of practice and its weakness; after three waves of promotion, still only a minority of employers know about the code and have acted on it. There is also the European Union age discrimination directive, which I have touched on and which the Government intend to implement this October.

The directive has many welcome features—it will permit equal access to work-related benefits and employment protection for workers over 65—but it will still build in the potential for a review period in which employers can insist on retirement at 65 provided that, beforehand, they have given the relevant individual the opportunity to request part-time working. The employee would have the right only to make the request; the employer would have no obligation to provide such work. The individual could say, "I would like to continue to work beyond 65. Are there opportunities for part-time work?", and the employer would have to consider that, but he could then say no and terminate the individual's employment without recourse to law.

My view is that the Government have made the wrong choice. As the Turner commission felt, it would have been better to have fixed the retirement age higher than 65—perhaps at 70—or for there not to have been one at all. I think that there should be no retirement age and that employers should have adult discussions with employees about their capabilities and ability to perform duties at a particular age. They could then reach a normal decision that would be implemented through normal employment policies.
 
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If we are to facilitate working after what is now the normal retirement age, we must consider other measures. First, we can consider reducing or even eliminating employer national insurance for workers over 65. The evidence from surveys—the Chartered Institute of Personnel and Development conducted a survey on this particular aspect—indicates that smaller employers in particular would find that useful. In fact, there was evidence that smaller employers particularly value older workers and would value direct encouragement to continue the employment, or to facilitate the new employment, of older people. Someone might apply for a new job after they were 65; they would not necessarily continue to work at the same place.

The first step is to consider the burdens on employers. Secondly, the workers themselves should be given specific advantages if they continue to work after 65; such advantages could be linked to tax or national insurance and allow them to reduce the costs of their continuing to work. There are strong economic arguments for discriminating in favour of those over 65 who continue to work in some way or other. I am sure that the precise rules—the hours required and so on—could be given greater thought, but there is a strong argument for continuing to encourage older workers' economic contribution to our country. We should be prepared to make appropriate provision in our national insurance and tax policies to do that.

There might also be benefit in giving greater help to those who defer taking the state pension. At the moment, that appears to be a direct, pound-for-pound transaction. If a person puts off taking the state pension for a year, their pension for that year is paid later. The person does not lose the money, but does not gain by deferring. However, they should be able to gain. That would be worth while for our state revenues, let alone the circumstances of the individual involved.

We need to examine the relationship between the state pension and other benefits. The fatal overlapping benefits rule means that once a person has drawn the state pension, they are not entitled to a variety of other benefits that are regarded as overlapping. I have always recognised that rule to be fair for some cases, but I have never fully understood its logic for many others, particularly when the relevant individual is involved in caring or something similar. The state pension is not a benefit, but an entitlement based on contributions made through national insurance during a person's working life. It should not be treated as another benefit, and a person should not be barred from other benefits because they receive a state pension.

There should be direct assistance for training courses aimed at older workers. The Learning and Skills Council has rightly focused considerable resources on younger workers who have failed or been failed in their education and who, at the start of their working lives, require additional assistance to get qualifications. We should also aim to provide extra resources for older workers to do exactly the same.

In future, healthy retirement will normally comprise a portfolio of activities to suit an individual's circumstances, including leisure and family commitments, which many older people have substantially as they enter retirement, as well as voluntary and paid activities. It is to society's benefit, as well as that of the individual, that that should be facilitated, and it should be an individual's free right.
 
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12.47 pm

The Minister for Employment and Welfare Reform (Margaret Hodge) : I congratulate my hon. Friend the Member for South Derbyshire (Mr. Todd) on securing this debate and on his thoughtful contribution on what I consider a subject of key public policy importance on which we shall spend more time in the coming period.

My hon. Friend is right to draw attention to the changing nature of the population. Many of our policies look at employment rates beyond the age of 50; at that age, men and women have life expectancies of more than 33 years and more than 36 years respectively. One can pull out very stark statistics on this issue. The one I have chosen to mention is that by the late 2020s, almost half the adult population in the UK will be over 50.

If we compare the employment rate of those over 50 with that of the general population of working age, we see a gap. Some 70.7 per cent. of people below state pension age but over 50 work, whereas just under 75 per cent. of the population as a whole work, so the gap is about 4 per cent. The other interesting thing is that most of those over 50 who are no longer in work did not volunteer to leave their jobs, yet once out of the labour market very few of them—only 8 per cent.—try to get a job again. There is genuinely an issue here, and my hon. Friend is right to draw attention to it.

Many of the issues that we are dealing with today come from the legacy that we inherited, and the most rapid decline in the employment of older men in particular came after 1979. That was due partly to the structural change and the decline of heavy industries, but also to the fact that company policies, to which the hon. Member for South-West Bedfordshire (Andrew Selous) drew our attention, were pretty rigorous in using the pretext of age to reduce work forces. The stewardship of the economy meant that there were not as many job opportunities as we enjoy today.

Progress has been made since 1997, when the Labour party came to power. In 1979, the employment rate among those aged 50-plus was 72.4 per cent., but by 1994 it had gone down to 62.6 per cent. We have returned the figure to just over 70 per cent. Not surprisingly, the employment rate for women has also increased. It was at its lowest in 1984—54.7 per cent.—but at 68.4 per cent., it is now almost equal to that for men.

Our record of using the instruments of public policy to encourage the employment of older people is good and has been recognised as such by the Organisation for Economic Co-operation and Development—we are about 10th out of the 30 OECD countries—and by the European Union. In relation to our European partners, we are second in respect of the employment rate for the over-50s. The unemployment rate for older people is now lower than that for other groups. If older people choose to stay active in the labour market, they are more likely to be in work than the rest of the working-age population. That is another interesting fact to consider.

Since we have been in government, we have brought more than 1 million extra people aged 50 or over into work. Of course, we want to go further and tackle many issues to which my hon. Friend the Member for South Derbyshire alluded, but we are proud of our record. We have reduced the gap in employment rates between the over-50s and the under-50s by about 20 per cent. Again,
 
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we are proud of that. It is interesting to see where the over-50s work: about a quarter are self-employed—there is a greater propensity to self-employment among the over-50s—and 70 per cent. work part-time. My hon. Friend might not know that figure, but there is a lot of part-time working by older people.

There are problems that we need to tackle and there are structural questions. We need to think about whether we have the structure of the tax and benefits system right and whether we have the right rules on pension schemes. We have done a lot, but we need to do more. There are personal issues for people that we need to confront. Older people tend to be the ones who have issues relating to health and disability. Many of our welfare reform Green Paper proposals focus on that.

My hon. Friend drew attention to the lack of flexible working. The Green Paper also contains proposals on that. We are attempting to tackle lower qualification levels among older people through many of the employment and training programmes that we have introduced. There are also cultural issues, as individuals might have unrealistic aspirations on early retirement and employers might have outdated prejudices on the capabilities of older people and their capability to work.

I shall go through some of our plans and then briefly tackle the issues to which my hon. Friend alluded. We published our health, work and well-being strategy document about six months ago and it is very important. In it, we consider the links between the work undertaken by the Department of Health, the Department for Work and Pensions and the Health and Safety Executive, so that we ensure that people can get the benefits of work. I am talking about healthy workplaces and ensuring that efforts to secure early rehabilitation to keep people in their jobs or to bring them back into their jobs are co-ordinated across Government and all agencies that respond to individual needs.

I have talked about the welfare reform agenda, whereby we are trying to ensure that proper support structures are in place so that we can provide opportunities for older workers to stay in or return to work. Once those support structures are in place, there will be a responsibility on individuals to take up the opportunities.

I note that my hon. Friend does not think that the changes to the state pension go far enough, but there are now better financial incentives to defer taking the pension. I am referring to the rate of increment and the ability to access a lump sum, which is pretty generously calculated. It is set at 2 per cent. above the Bank of England interest rate and compound interest is built into the calculation.

We have made an important alteration to private pension schemes so that people can take their pension and carry on working. We have introduced improvements to personal allowances for those over 65. The personal allowance for someone over 65 who is working is £7,280 as compared with the general allowance of just over £5,000.

The welfare reform Green Paper contains a series of propositions, which we are taking forward. They involve giving older workers access to the new deals,
 
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piloting better one-to-one support for older workers and seeing whether we can take the introduction of flexible working further.

We are also considering how we implement the age discrimination legislation. My hon. Friend talked about that for some time. The legislation has just passed through the processes of the House and will come into force in October. He is right to say that, under the legislation, there is a default retirement age of 65, although we have promised that we will review that, as the measure beds in, over five years. I tend to agree with him that if we can get rid of that default age, we will improve the ability of older people to participate in the labour market. However, I hope he accepts that as we try to transform cultural attitudes in our society towards the employment of older people, we should bring all the stakeholders with us. As we set the default retirement age, we were conscious of the concerns of business. There were fears among those in the business community that if there was no retirement age, they would find it difficult to manage their work force and ensure that younger people had the opportunity to develop in the workplace.

My hon. Friend talked about the lack of knowledge of and information about the changes that the Government are introducing. I have been engaged in a number of changes, particularly involving individual rights in respect of equality, and I know that it takes time for such changes to become known to employers. I am thinking particularly of the work that I have done on disability. Despite pretty extensive publicity, there was still some reluctance among employers to understand and take on board their responsibilities under disability discrimination legislation.

We probably face a similar situation with the issue that we are debating today, but 37 per cent. is not a bad knowledge base, given that we have some months to go before implementing the legislation. I hope that our "Age Positive" campaign and the "Be Ready" campaign, which we are running with our partners, will help to build understanding of the new legislation so that there is compliance when it comes into force in October.

I agree with what my hon. Friend said about the advantages of older people staying in work. That is better for the individual in terms of their prosperity and status in society. There is also a growing body of evidence that work can benefit individuals' health and well-being and can prolong life rather than reduce life chances. He was also right to draw attention to the benefits to society—not only the gains from additional income, but those from less expenditure on benefits, health services, social services and social infrastructure to support individuals. There is also a loss of productivity to society if we do not take full advantage of the capabilities of older people.

My hon. Friend talked about whether we should waive employer national insurance for those over 65. He will know that that recommendation emerged from the Turner commission. We are considering it and we will report on the way forward that we want to pursue, having considered the Turner review.
 
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My hon. Friend talked about whether we could go further on greater advantages to individuals through the tax and national insurance system. Again, we constantly review our position on that to see whether we can do more. He talked about greater help for those who defer taking the state pension. We have made huge progress in that regard, but I will take his views on board as we consider how we can better benefit from the undoubted huge strength that we have in older workers, whom we want to keep in work and contributing to the well-being of our society. We also want to ensure that they, too, feel that they make an individual contribution.


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