Please don't go too soon

Employers are trying to stem the tide of early retirement, says Anat Arkin

Despite improvements in health, working lives have shrunk over the past 20 years, with a flood of teachers taking early retirement - part of a much wider trend that employers and policy-makers are now trying to reverse.

There is no official record of the number of people who retire early. But according to the Government's labour force survey, the proportion of men aged 60-64 who are either working or looking for work has fallen from 78.4 per cent in 1976 to just under 50 per cent in 1996. Older people no longer in work include those who are disabled or looking after dependants, but people who have retired early clearly represent a large proportion of the total.

The escalating cost of funding early retirement means that after years of offering this option to older, more expensive employees, many employers are now discouraging them from leaving early.

Joanna Walker, resources manager for the Pre-Retirement Association of Great Britain, describes plans to shift part of the cost of teachers' early retirement on to local education authorities and grant-maintained schools as a graphic illustration of this development, which extends beyond the public sector.

"Within large companies the deals that were offered five or 10 years ago are not there any more," she says, adding that the growing burden on pension funds is not the only reason why we are now in a period of "discouraged retirement".

"Some companies have also realised that if they simply reduce their manpower's age profile, they will lose all their experience and history. So when they are downsizing they are no longer necessarily targeting older people."

Unions representing civil servants fear that younger people will become the main targets of future staff reduction exercises.

In 1995-96 more than 43,000 employees out of a total of about 520,000 left the Civil Service. Of these leavers, 21 per cent took early retirement, while 10 per cent were people under 50 who took early severance.

A spokesman for the First Division Association, which represents senior civil servants, says that with fewer opportunities for promotion in today's flatter management structures, a high proportion of senior and middle-ranking officials have volunteered for early retirement.

"Most of the people who have been taking early retirement have been in their early 50s," he says. "That's the point where people tend to think they are not going to get any further, whereas people in their late 50s think they might as well wait and collect a full pension."

For the past three years the Treasury has met 80 per cent of the cost of early retirements from the Civil Service, but from April individual government departments and agencies will have to meet the whole cost. Like LEAs and GM schools facing a similar change, some departments could find this difficult.

Charles Cochrane, secretary of the Council of Civil Service Unions, says: "After April my guess is that instead of seeking volunteers, we will increasingly get into compulsory redundancy. Departments will have to look for value for money and therefore we will find younger people and people with shorter sevice being pressured to go or being made compulsorily redundant. "

With female civil servants often having fewer years' service than their male counterparts, Mr Cochrane predicts that women will bear the brunt of any compulsory redundancies.

Unlike teachers, civil servants and other public sector employees whose pension schemes are based on notional pension funds, local government workers pay their pension contributions into a real fund. Every local authority in England and Wales belonging to the Local Government Pension Scheme has to issue an annual report on its pension fund, telling members where their money has been invested.

"The advantages of a funded pension scheme are that the money is invested and the payment of the pension does not depend on the employer's ability to pay it because the money is put into a separate account," says Robert Gibbs, principal pensions adviser for the United Kingdom Steering Committee on Local Government Pensions.

He contrasts this arrangement with non-funded public sector schemes where payments come out of general taxation.

Some pension specialists argue that if teachers also had a funded pension scheme their notional pension fund might not have run up a Pounds 1.5 billion overdraft, and there would now be less pressure to reduce the number of early retirements.

Mike Beard, head of pensions at the National Association of Head Teachers, says that, wisely invested, a funded scheme might be able to provide retired teachers with better benefits than the existing scheme. But he points out that it would take a huge amount of cash to get a funded scheme off the ground - something no government is likely to provide.

Les Berry, marketing manager for corporate pensions at the Prudential, says one possible alternative would be to allow teachers to retire early but with penalties to offset the cost. This would be in line with occupational pension schemes in the private sector, which often allow employees to retire early but reduce their benefits by as much as 0.5 per cent for every month between their age at retirement and the official retirement age.

So someone who retired at, say, 55 rather than 60 would not only receive a reduced pension because they had fewer years' service but would also incur a 30 per cent early retirement penalty.

This may not look like a very attractive option to many teachers. But for those who have given the profession all they can - and can afford to retire on a reduced pension - it could provide a way out.


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