The impact of an ageing population on employee benefits

This article has been supplied by Zurich.

Greying workforce
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Improving longevity is unquestionably a global trend driven by major improvements in health and medical advances.

The greying workforce is particularly pronounced in the developed economies of Europe, the US, Australia and Japan. For the emerging economies of India, Mexico, Brazil and Indonesia, it is much less of a concern.

But is the trend towards a greying workforce happening across all industry sectors? In Zurich’s Impacts of an ageing population survey on employee benefits, 56% of employer respondents see a trend towards people staying in employment past traditional retirement age: 71% said their older workers were in the 65 to 70 age group, compared with only 29% in the 60 to 65 age group.

It would seem that certain sectors of the workforce, such as energy, engineering, hospitality and manufacturing, are faced with a more serious problem than others.

While longevity is ever increasing, chronic illness does not appear to be declining at the same pace. This has serious financial implications for the cost of healthcare and risk benefits for employers.

Benefits for a greying workforce

Against the backdrop of people living and working longer, the question employers face is whether to change the benefits packages offered to accommodate the greying workforce, and, if so, when is the right time to implement any changes.

The abovementioned research found that 35% of employers said the greying of the workforce was having an impact on the benefits they offer today.

But when asked about the impact on benefits in the future, this figure jumped to 65%. Not surprisingly, private healthcare, group life insurance and income protection were at the top of the list of benefits affected. 

This is resulting in more requests from employers to continue providing life and income protection benefits for employees after their ‘normal’ retirement age and increasingly into their 70s. The cost of providing cover for this older group, particularly for health, disability and income protection benefits, escalates rapidly and, in some cases, perhaps because of existing chronic conditions, obtaining cover at any price from insurers can be a challenge.

Who will foot the bill?

So, who will foot the bill of the greying workforce? Cost remains the unanswered question. According to the results of the Impacts of an ageing population survey, 40% of respondents were unclear about how they will deal with the potential increase in benefits costs. Only 15% plan to absorb the extra cost, with 37% of organisations planning to share the cost with employees.

Only a small number plan to remove the uncertain elements altogether, so it is likely that some of the cost of providing benefits will transfer to the employee at some stage in the future.

What was clear was the employers’ approach to the future cost of additional retirement funding: 80% said they would not increase levels of retirement funding to offset the impact of increasing longevity. Instead, 87% of organisations plan to communicate and encourage staff to save more themselves.

Making sure that employees fully understand and appreciate the benefits on offer is clearly an important aspect of this encouragement.

Longevity and the greying of the workforce will bring both challenges and opportunities for employers. Benefits design will need to change, as will flexibility around the working day. With this in mind comes a need to revitalise the benefits of the globally mobile and expatriate community. Improving longevity and the greying of the workforce are happening right now, raising challenges for employers and employees alike.

Stewart Allanson is international corporate distribution manager at Zurich Corporate Life and Pensions.