Older, but none the wiser the implications of an ageing workforce in the UK

But when the pain does arrive, the Commission says the UK should have had much more time to adjust, because it will have had more scope to bring people into the workforce and to improve

The implications of an ageing workforce in the UK

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OLDER, bUT NONE THE WIsER?

Contents

Executive summary

An ageing workforce will create big talent management

challenges for UK employers They should be changing their

reward and resourcing practices now.

Historically low birth rates and increasing life expectancy

mean that Europe’s working population is ageing fast In 2012

the continent reached an inevitable demographic tipping

point The percentage of the population of working age fell

for the fi rst time in 40 years It is now forecast to fall every

year until 2060 This inescapable trend will have profound

implications for governments, citizens and companies

across Europe

The demographic make-up of the UK means that the country

has more time to adjust—until the early 2020s—than the

continent’s other large economies, according to European

Commission forecasts But are UK companies using that time to

their advantage?

To explore some of the issues that senior executives will have

to address as they seek to adapt their organisations to this new

world, The Economist Intelligence Unit, on behalf of Towers

Watson, surveyed 480 senior executives at companies across

Europe, with 84 in the UK Just over three-quarters (76%) of

those in the UK expect the number of their employees aged 60+

to increase by 2020, including 29% who expect it to increase

signifi cantly

Key fi ndings include:

Companies have a chance to prepare now, but most are not taking it Workforce ageing will hurt the UK later the

continent’s other main economies But this opportunity is being squandered When it comes to the kind of workplace changes that experts say are essential, UK companies are at the bottom of the European league table Less than one-fi fth (18%) plan to let older workers cut their hours without feeling less valued

Workforce ageing must move up the business agenda UK

executives are currently the least concerned in Europe about the challenge of managing an ageing workforce Just one in 17 sees ageing as an issue By 2020 that fi gure will leap fourfold—the biggest increase in Europe

The benefi ts on offer need to change As the workforce ages,

employees will value a different mix of benefi ts UK companies are the most likely in Europe (48%) to feel that the benefi t programmes they have in place today would not be fi t-for-purpose in 2020 Some 60% plan to offer more choice—by far the highest proportion in Europe

Insuffi cient savings are to blame for the UK pension crisis

Demographic change and government defi cits are seen as the biggest challenges to their country’s pension system But the

UK (45%) executives overwhelmingly say the problem is that individuals are not saving enough That is more than three times higher than in the next country, the Netherlands

The economic and business implications of Europe’s ageing workforce are huge But the UK should have more time to adjust than any of the EU’s other large economies Germany, one of the most exposed countries, could experience serious labour supply constraints within the next two or three years under the European Commission’s most pessimistic scenario The UK has a younger population; the Commission does not expect demographics to start hurting its economy until the early 2020s But when the pain does arrive, the Commission says the UK should have had much more time to adjust, because it will have had more scope to bring people into the workforce and to improve productivity.

Perhaps it is no surprise, then, that the survey found that UK executives are currently the least concerned in Europe about the challenge of managing an ageing workforce Just one in 17

UK executives sees ageing as an issue today; that level is over fi ve times higher in France But this period of executive calm is not likely to last

UK companies will shift their priorities over the next few years They currently have a laser-like focus on cost control—68% say it is one of their two most important business concerns, the highest percentage in Europe As economic prospects brighten, the focus on managing costs will diminish By 2020 only 20% think it

Calm before the storm 1

What would you say is the most important business priority for your organisation currently?

(% of respondents)

Chart 1

UK in 2020 Europe in 2020

UK now Europe Now

Risk control and management

Talent management (HR) Innovation

Expansion Cost control

Restructuring

27 26

8 4

57 68

23 20

32 25

42 44

29 24

49 55

will rank as highly In its place, UK executives say their main business priorities in 2020 will

be innovation (55%) and talent management (45%)

With the focus moving away from what people cost to what value they can bring, workforce ageing will become more of a concern The survey shows that it will climb up the executive agenda across Europe, but nowhere is the expected leap

as high as in the UK, where four times as many executives think it will be a top-three issue in 2020—the biggest increase in Europe

UK executives have time to prepare that their peers in other countries would envy, but most are making little use of it “The key to engaging and retaining older workers is to adjust work to their needs,” says Maria Karanika-Murray, a work psychologist in Nottingham Trent University’s School of Social Sciences “Some companies are

already doing this, but many are unsure of their options.”

In important areas, UK companies are lagging far behind Only 28% of survey respondents say they are planning to ensure that the skills of older employees remain up to date Just 18% expect

to adapt their structures so that older workers who cut their working hours or responsibilities can retain their status in the business and feel valued On both points, the UK comes bottom in Europe—by a wide margin

More needs to be done, believes Baroness Sally Greengross, chief executive of the International Longevity Centre, a UK think-tank on longevity and demographic change “There is signifi cant denial around the implications and consequences

of our rapidly ageing population,” she said

in a recent debate “If we don’t change our employment practice, industry will face a skills gap: this is inevitable.”

What, if anything, does your business plan to do by 2020 in order to adapt to the changing needs of your workforce?

(% of respondents)

Chart 2

Germany UK

Europe

Source: The Economist Intelligence Unit.

Other, please specify

Looking at how to address generational differences in our

inter-workforce

Giving employees more choice

over their benefits

Adapting our structure to ensure that older workers who reduce work hours or responsibilities retain their status within the company and continue to feel valued

Ensuring that the skills of older employees remain up to date

Offering more flexible working hours

or working from home

Changing the employee benefits we offer

Making physical changes

to the workplace

28 24

45 50 55 56 46 46 48 28

32 39 18

48

60

2 2 2

29 27 25

45

60

77

As employers adjust their human resources plans to fi t a brightening economy, employee expectations will also change For now, job security is still seen by executives as the number one employee concern by a wide margin And UK employees are thought to worry more about this than those in any other European country, apart from Spain and Italy But UK executives expect this to roughly halve by 2020.

Instead, employees will look much more closely

at the quality of their working lives Today, 55%

of UK executives report that work-life balance is

a top-three concern for their employees—that

is by far the highest fi gure in Europe By 2020 executives in every country, apart from France,

believe it will become the main employee concern.Refl ecting the shift from money to lifestyle benefi ts, one-third of European executives expect their employees to want more job sharing, part-time working, portfolio careers and the opportunity for phased retirement The common denominator here is that employees want greater

fl exibility

But how companies plan to deliver that fl exibility varies by country For Europe as a whole, the most common response is to offer more fl exible working hours or working from home (56%)

UK companies see this as a way forward too But they are far more likely to see better benefi t

Employee demands are changing 2

What do you believe to be the issues your employees see as most important today?

(% of respondents)

Chart 3

UK in 2020 Europe in 2020

UK now Europe Now

31 35

23 22

19 18 15 6

17 11

42

55

45 48

14 11

25

17 20 17

33 32

24 24 25 28

3 4

8 7

Source: The Economist Intelligence Unit.

Caring for dependents (children and elderly)

Skill development

Employment flexibility (job sharing, portfolio careers, part-time working, phased retirement)

New technology /pace of change

Work-life balance

Healthcare provision

Stress and wellbeing

Saving for retirement

Job security Financial

security

programmes as the answer to their talent management challenges And here they see signifi cant need for change.

According to the survey, UK companies are the most likely in Europe (48%, compared with an overall European average of 39%) to feel that the benefi t programmes they have in place today would not be fi t-for-purpose in 2020 Some 60%

plan to change the employee benefi ts they offer and to give employees more choice over their benefi ts—by far the highest proportion in Europe

But UK executives are also the most likely to believe that the cost of benefi ts as a percentage of salary will increase (62%)

Here they will face a conundrum: how can they offer employees the choice and fl exibility of

How likely is it that the benefit programmes you have in place now will remain fit-for-purpose in 2020?

(% of respondents)

Chart 4

Source: The Economist Intelligence Unit.

Very unlikely Unlikely Neither/neutral Likely Very likely Don’t know

35

9 13

2 7 25

3 12 27

7 4 18

2 10 26

32 27

24 36

11

29

29 5

27 3

19 14

8 16

30 43

3

5 36 21

30 9

benefi ts and work practices they are looking for without allowing costs to spiral upwards? The survey suggests UK companies may be better placed to deal with this challenge than others Today, they are less likely to believe their company has built up its benefi ts offer without

an overarching strategy (24%, compared with 37% for all Europeans) But like executives across Europe, only half of them (54%) believe they currently offer a comprehensive benefi ts package that helps them to attract and retain staff

As executives rethink their benefi ts offer, healthcare will become increasingly signifi cant

Even if state health provision were not under pressure from demographic change, the health and welfare of employees would logically become

a growing human resources concern, since workforce ageing will require companies to rely more on older workers anyway

Over two-thirds (70%) of European executives feel this is the case—slightly more than the 64%

in the UK, with its National Health Service (NHS)

Yet as state health funding comes under pressure

in the UK and companies look to offer a richer mix

Healthy workers, healthy profi ts 3

of benefi ts, it is no wonder that UK executives are the most likely in Europe (79%) to believe health benefi ts will become increasingly important to employees

But does that rethink necessarily mean an increase in cost? “If older people maintain a healthy lifestyle, there is no reason why they can’t choose to continue to work well beyond the pensionable age and contribute in some way,

at no extra burden to the employer,” says Ken Jones, chief executive of the UK-headquartered European business of Astellas, a Japanese pharmaceutical company

Many companies see phased retirement as

an important way of adapting to an ageing workforce UK executives considering this option are likely to be pushing at an open door The country’s citizens are almost twice as likely as the average European to want to keep working after their pension age—56% of them are keen on the idea, according to the European Commission On this measure, only the Danes rank more highly among the EU’s 28 member states And those

in the UK are also much more interested in the option of taking a partial pension while working

Tackling the pensions problem 4

What challenges are employers facing in making changes to their retirement benefits? Select up to three

(% of respondents)

Chart 5

UK Europe

Source: The Economist Intelligence Unit.

24 33

19

6

19 14

Pension funding is also a thorny issue Like their counterparts in Europe, many UK executives (41%) believe employers should help their employees to have a comfortable standard of living in retirement, with 44%—a notch above the European average—saying employers should

be primarily responsible for providing retirement provision

But unlike their European peers, UK executives believe individual employees share the same burden of responsibility What is more, they are far less likely to believe that the employer should bear the risk of retirement provision Over

half (53%) of UK executives disagree with that suggestion—more than double the proportion in Germany and Italy

For UK executives, the greatest threat to pension provision in their country is the fact that—in their view—employees are not meeting their side of the deal Whereas executives across other countries say the biggest systemic pension challenges are demographic change and government defi cits, those in the UK (45%) overwhelmingly point to insuffi cient savings by individuals That is more than three times higher than in the next country, the Netherlands

What is the biggest challenge facing the system for retirement savings in the country in which you are based?

(% of respondents)

Chart 6

UK Europe

Source: The Economist Intelligence Unit.

Workforce ageing could also affect the way IHG deploys older staff, adds Mr Voller “We would typically have people moving up the career ladder; if they are staying in senior roles for longer, we’d want to make sure we are creating career opportunities for them What role should they have at the end of their working life? How

do we get them sharing their knowledge and experience?”

But Mr Voller believes it is important to look

at workforce ageing as just one part of a wider talent management issue IHG already tries to offer its employees a wide range of benefi ts, for example, and tries to take account of what might appeal to them at the different stages

of their life—young or old “For me it’s about making sure we’ve got the right people in the right jobs at the right time We don’t put a huge focus on ageing per se; the key thing for us is to

fi nd talent.”

Compared with their European counterparts,

UK companies have been slow to think about the potential impact of workforce ageing But the issue is on the agenda at InterContinental Hotels Group (IHG), the UK’s second-largest hotel operator

Tony Voller, senior vice president of human resources Europe and global employer brand and resourcing, says the business will need to

fi nd new ways to engage its 9,000-strong UK workforce in the years ahead

“We will have to think more fl exibly about the way we employ people and the benefi ts we offer,” says Mr Voller “It’s great to assume people will want to work longer, although perhaps not at the same pace as they do currently We will need to think about how we change contracts and so on, so people can get the work-life balance they want.”

Case study: IHG

UK companies cannot escape the impact of demographic change, but they could do a lot more to prepare The need to address workforce ageing is not yet as urgent as it is in other European countries, but surely that is an opportunity for executives to plan now and deal with the challenge effectively, rather than rush it and make a mess.

This is particularly true in the realm of benefi ts

The survey shows that UK executives see a more

Conclusion

fl exible and employee-focused benefi ts package

as an important way of retaining and motivating workers, who will be in increasingly short supply Yet those same executives are the most likely

in Europe to believe their benefi ts programme needs a major overhaul Now would be the time to start that process