Thursday, 9 June 2011

Increased Retirement Age: Impact on Manual Workers and other Demanding Jobs

There appears to have been no study or assessment on the impact of raising the retirement age on manual workers. It is well known that manual workers often have more significant medical demands because of the physical nature of their work, and may well have to be signed off permanently before retirement age and have an invalidity allowance (or component of Income Support) instead.

Retraining itself can be difficult for a variety of reasons, especially if the nature of the infirmity relates to back trouble, and moving to a desk job also has problems as if someone has back trouble, a sedentary occupation can also make it worse.

There is an interesting study from Malta, where they are looking at increasing their retirement age to 65 rather than 68. It is entitled: "65 Years Retirement Age: Impact on Manual Workers and other Demanding Jobs Supplementary Paper to the Final Report of the Pensions Working Group"

It is still of interest, because any shift of pension age upwards has unexpected consequences on the population, and there was clearly a significant concern that Malta might experience these kind of problems. Hence, they looked both at the impact of these shifts, not just in Malta, but across the EU, and also looked at different ways in which an increased pension age could be mitigated for manual workers to address these problems.

They noted that the number of "inactive persons" aged between 55 and 64 years was the largest group of inactive persons in the population, but noted that care needed to be given when interpreting such figures, as  55-64 age group includes those persons who have already retired.

They noted that during October to December 2004:

- males in the 55-64 age cohort preferred full-time participation rather than part-time participation in the labour force;
- those males over 65 years of age preferred part-time employment more than full-time employment.

On the other hand, the percentage of females over 65 years of age in part-time employment is low when compared to other age cohorts although females over 65 years of age preferred part-time employment rather than full-time employment like males. The percentage of females aged between 25-54 years in part-time employment is higher than other ages.

The reason behind this trend can be attributed to family responsibilities, as females may be more able to maintain part-time employment rather than full-time employment after having children.

They noted that an increase in retirement age impacted differently on different cohorts in the population, and noted that any study should distinguish between the "macro impacts" resulting from an increase in retirement age, and the more specific impacts of an increase in retirement age on workers in manual and other demanding jobs. The negative sides of these could be given as follows:

Macro-Economic Impacts

Statistics indicate that older workers have high rates of unemployment, which may be aggravated, as the unemployment of old workers is less humiliating than the unemployment of young workers. Moreover, when employed older workers are often underemployed, as the employment does not match their skills levels.

Impacts on Employers

Employers feel that older workers are less productive than younger ones and the reduction of natural attrition could be detrimental to the company performance. This could lead employers to remain fixed at their current head count, when in actual fact, in need of the dynamism provided by the younger workforce.

An increase in retirement age may open a minefield of litigation as employees feel that they have been discarded or that they have suffered a decrease in salary because of age discrimination and not for other valid reasons

Impacts on Workers

Employees who have poor health, but do not quality for a disability pension will find it difficult to get a job.

Employees who are made redundant by their employees, may feel discouraged to apply for jobs because they think the will be discriminated against because of their age.

An increase in retirement age, increases the impact of work-related stress, demands and pressures on the individual's physical and mental health. European Agency for Safety and Health at Work studies estimate that the cost of stress at work and the related mental health problems could amount to 3% to 4% of the Gross National Product in the 15 EU members (pre-2004).

An extension of the retirement age might result in too heavy a burden in terms of physical strain, on the manual worker. The increase in the retirement age may lead individuals in this category, who are not able to work for these additional years, to leave the workforce and seek social assistance, unemployment benefits or invalidity pension thus restricting their social right to leave the workforce in a dignified manner

Older workers suffer more from osteoarticular problems as they are exposed to physical stress. 50% of the employees who carry heavy loads and are under the age of 25 (men or women) who suffer from back problems attribute these to their work. 75% between the ages of 45 and 54 for men and close to 80% above the age of 50 for women attribute their back problems to their work.

The economy is increasingly becoming service-driven making it easier for older workers to perform their jobs. However, those still in manual jobs and in other demanding jobs may find it difficult to maintain their current job for a longer number of years. Moreover, the pace of change is a very rapid one, which may make it more difficult for older workers to keep up. Therefore, manual workers and other workers in other demanding jobs may need to be retrained to do a different job to maintain their
participation in the labour force.

They noted that the panacea of "reskilling" could not be relied upon as the change of job could be a problem with older people, especially if the new job is very different than the former. Surveys across Europe show that the perception among older workers is that it is harder for them to "to learn new things" And equally, employers tend to tend to believe that older workers lack the capability of training or are less flexible.

But they note that industrial gerontological and occupational psychology research (OECD. Incentives and disincentives to early and late retirement (Working Paper).) shows that it is simplistic to conclude that the common belief that older workers are less flexible than younger workers is true. Rather it is the case that a different approach is needed:

Older workers need a different training approach which takes into consideration their particular characteristics. One reason for the different training approaches is that "fluid" cognitive abilities (including short term memory and attention) are negatively related to age and "crystalised" cognitive abilities (relating to verbal, acquired or specialised skills) are positively related to age. Therefore, training programmes for older people should:

- involve learning by doing;
- build upon existing concepts and structures;
- appear directly applicable; and
- be suitably paced.

There is another effect of increased retirement age which relates more to manual workers where their children are also on low incomes, and that is an increased burden of childcare on expenses. They note that:

This brings about a change in lifestyle together with a change in culture as the grandparents are no longer available to support their children in employment and thus their children have to find other alternatives for support (e.g. the use of childcare services for grandchildren).

And another factor to consider is the longevity of the manual worker. The current statistics (Economist's View. 2005. The costs and benefits of raising the retirement age.) support the view that blue-collar workers do not live as long as white-collar workers.

Thus, an increase in retirement age could have blue-collar workers even less likely to enjoy their pension. Moreover, blue-collar workers tend to be poorer and consequently an increase in the retirement age will have a larger impact on blue-collar workers and low-income workers. In Switzerland, occupations in physically strenuous work sectors, such as occupations in the construction industry, forestry and wood-processing industry, there is a clearly higher morality rate compared with the average. Architects, engineers, doctors and teachers show a mortality rate far below the average.


Increasing the retirement age impacts the workers of manual jobs and other demanding jobs in a different and possibly more intense way. It may be harder for workers in manual and other demanding jobs to maintain their employment for the additional number of years. Studies also indicate that this category of workers have a less healthy lifestyle and do not live as long as white-collar workers.

But they also noted that the intensity of the impacts emerging from the increase in retirement age depends also on a number other factors including the number of employees actually in manual and demanding jobs. Regarding health, they note that:

Individuals unable to work for the additional number of years may be constrained to leave the workforce and seek social assistance, unemployment benefits or invalidity pension. Such individuals are not be allowed to leave the workforce in a dignified manner and may experience a decrease in their disposable income resulting from not actively participating in the workforce. Being inactive has an impact on the pension received upon reaching the retirement age, as the individuals who are incapable of maintaining their job up to the retirement age will find it more difficult to pay the required contributions and thus will not be entitled to the full pension.

What they suggest for manual workers is not early retirement as an option, as that tends to benefit the more wealthy, and increases difficulties for manual workers - but a "Partial/Gradual/Phased Retirement" option. This works as follows:

Manual workers and workers of demanding jobs who have not reached the statutory retirement (65) - but who are not able to work up to age 65 years due to valid reasons associated with their employment - are offered the possibility of partly retire and partly work. This will ensure a smoother transition between work and retirement and will alleviate the burden on employees who cannot maintain their full time employment.

In order to be eligible a worker must have 61 years of age and must have paid 30 years contributions. Eligible workers will receive a partial pension from age 61 years but will continue to work on a part-time basis. The total of the partial pension and of the part-time wage should not go over the wage of an employee doing the same job on a full-time basis. The partial pension is calculated in such a way that the same total pension benefits are received over lifetime, but in smaller amounts to take into account the longer period the beneficiary will be receiving them.

- Minimises the theoretical "pension shock" by offering the possibility of gradually retiring, while at the same time workers can pass more time with their family or engage themselves in activities that do not have to do with work.
- People stay longer in the workforce than if they offered early retirement or retirement based on contributions, positively impacting the sustainability of the social security system and the economy of the country.
- Minimises the negative impacts of an increase in retirement age on workers of manual and other demanding jobs who are not able to participate in the labour market due to the nature of their job, as work is adjusted according on the worker's decline in capabilities and physical fitness.
- Older workers will still participate in the labour market although not a full-time basis and thus their experience will not be lost and the transition to future generations is facilitated.

Perhaps Jersey needs to consider this as an extra option?



Anonymous said...

I was gathering some info for a piece on this, but you seem to have beaten me to it. Good stuff.

I heard a snippet on the radio that the Social Security minister still wants to impose a compulsory insurance scheme for care in old age. Some statement along the lines of people should not have to sell their property to afford care in old age. But what of the people who never have the opportunity to acquire property - why should they they having to insure against a risk they never face?

TonyTheProf said...

I couldn't agree more; that's why a scheme should go through the owner component of the rates instead, for owner/occupier households, as they are the people who will benefit from it. That would be fair.