Brian Fallow: Let's embrace our grey haired workers

In the 2006 census, there were five people aged between 15 and 64 for every one over 65. By 2020 it is projected to be four to one, and by 2050 two to one. Photo / Steven McNicholl

The days when everyone retired abruptly at 65, like it or not, are long gone.

And the days of 65 as the age of eligibility for New Zealand Superannuation are numbered.

Last year people aged 65 or over made up 39 per cent of the increase in the number of people employed. In the past 20 years the number of over-65s in paid employment has almost quadrupled, from 25,000 to 95,000.

Labour force participation by senior New Zealanders is among the highest in the developed world at 18 per cent.

Admittedly these statistics include people working part-time.

But that is the point. Firms need to be flexible in the face of an ageing workforce.

This is the year the first of the baby-boomers - the generation born between 1946 and 1964 - turn 65.

It is usually thought of as a burden, an inexorable increase in the ratio of the retired to the employed, but it is also an opportunity.

A report by the Ministry of Social Development entitled The Business of Ageing that was released this week lays it out starkly.

In the last Census in 2006 there were five people aged between 15 and 64 for every one over 65. By 2020 it is projected to be four to one, by 2030 three to one and by 2050 two to one.

It is driven not just by changes in the birth rate in the past but also by increases in life expectancy.

On average a 65-year-old man can look forward to 18 years of retirement, a woman to 21 years.

The MSD report argues that we can mitigate the demographic shift and the associated rise in government expenditure by improving work opportunities for older people.

It expects increasing labour force participation by people aged 65 to 70.

A recent survey the MSD undertook of older people's attitudes to work found the factors which would encourage them to stay in work included variable hours of work, more unpaid leave, work with less responsibility or physical demands and the ability to work from home.

Continuing to work, it seems, is good for you.

"Older people continuing to work part-time after stepping back from full-time work is associated with fewer major diseases and higher satisfaction with retirement, compared with those who have fully retired from work."

But the benefits seem to depend on whether people are working because they want to or because they have to.

Employers who do a few small things differently will "future-proof their human resources", the report argues, and be rewarded with lower staff turnover and recruitment costs.

"Part-time hours, episodic work, a different role, extended annual leave - all these components of work design could encourage older people to remain active in work.

"A shift in attitudes towards older workers is required.

"They can add value and increase productivity of younger workers through sharing their skills and experience."

The context is a workforce which is greying and set to grow more slowly.

Between 1991 and 2006 the labour force expanded by about half a million, but between 2006 and 2020 the increase is likely to be only about two-thirds of that.

From around 2020 workers aged 55 or over will outnumber any of the four younger age groups (divided into 10-year bands). They will represent a quarter of the workforce, instead of one-sixth today.

If businesses fail to adapt to this change and fail to make the most of this resource, the economic costs will be high and unnecessary.

A Department of Labour report called Understanding the Job Mobility and Employability of Older Workers says the group now entering "mature working life" is better educated, has a wider range of work experience and enjoys better health than previous generations of mature workers.

But they have disadvantages too, compared with younger workers, that can limit their labour mobility.

More of their skills are based on job experience rather than recent education and training.

"Many older workers have acquired very specific human capital - knowledge and experience that may be invaluable in a particular job but is not easily transferred to a new job.

"Younger workers, by contrast, are seen as having a higher proportion of general human capital, for example knowledge from recently undertaken tertiary study, which is more widely recognisable and readily transferable from job to job."

Discrimination in employment on the grounds of age is illegal under the Human Rights Act but it happens nonetheless.

"Some of this may be due to outright prejudice but a complicating issue faced by older job candidates is that they are harder to assess due to their more concentrated and complex forms of human capital," the Department of Labour report says.

Attitudes to remuneration can also be a barrier.

Someone who has been used to above-average pay but loses his or her job may be reluctant to accept lower pay.

He or she may also be less attracted by remuneration systems that emphasise prospects for promotion and higher salaries in the future.

"On balance, research suggests that, given a choice, displaced older workers tend to prefer immediate employment over retraining.

"Even those who are laid off due to a technological change often prefer to make do with their remaining skills and take lower-paying jobs, rather than develop new skills."

Overcoming this is likely to become more important as working lives elongate and the pace of technological change quickens.

Constrained by an extremely ill-judged pledge by John Key, the Government refuses even to talk about raising the retirement age or, more accurately, the age of eligibility for New Zealand Superannuation.

But the fiscal necessity of such a change is apparent as is the need to give people notice.

The Australian Government announced two years ago it would move the age for receiving the pension from 65 to 67 between 2017 and 2023.

The United States is in the throes of moving the age of eligibility for social security to 67. Britain is moving to 68. At least seven OECD countries are making such a change.

Geoff Rashbrooke, the former government actuary now at Victoria University's Institute of Policy Studies, has modelled the trade-offs between the burden on taxpayers and age of eligibility.

If you wanted to hold the tax burden per worker where it is now, at about $3000 in today's dollars, the age of eligibility would have to rise sharply, to 70 by 2024 and 75 by mid-century, he says.

A more gradual rise in the age, accompanied by a progressive rise in the tax burden per worker to the equivalent of $4000 today, or 8 per cent of the average wage, would have the age of eligibility reach 66 by 2015, 67 by 2020 and 70 by 2040, remaining at 70 thereafter.

Clearly there would need to be jobs, private sector jobs, for those older workers.

Treasury deputy chief executive Gabriel Makhlouf, in a speech to an Age Concern conference last month, said the Treasury had looked at how much tax would have to go up to handle spending pressures from NZ Superannuation, health and other areas, while pulling public debt back down to the target of 20 per cent of GDP.

"Our estimate is that from the early 2020s onwards the GST rate might need to rise to 19 per cent from the present 15 per cent."

If instead of GST the tax increase was in personal income tax rates, we would need to pay an extra 3c in the dollar across the board, to achieve the same debt track - about $30 a week in today's money for someone on the average wage.