Flexible Retirement and Inflexible Pension Schemes
| Date | 01 May 1985 |
| DOI | https://doi.org/10.1108/eb055058 |
| Pages | 8-9 |
| Published date | 01 May 1985 |
| Author | John White,Paul Blyton |
| Subject Matter | HR & organizational behaviour |
Flexible
Retirement
and Inflexible
Pension
Schemes
by John White
Legal and General Assurance Society,
and Paul Blyton
UWIST, Cardiff
Introduction
In recent years, practitioners of personnel and industrial rela-
tions have begun to pay much closer attention to issues
relating to retirement and pensions. The use of early retire-
ment as a vehicle for manpower reduction, the growth in
occupational pension schemes, state encouragement of
early retirement through the Job Release Scheme and the
increasing interest in trade unions to engage in negotiations
over pension schemes have all combined to propel issues
of retirement and pensions a little more towards centre
stage.
Retirement has also attacted increased attention from
gerontologists, as it represents for many people a key trans-
ition in later life.
Retirement and Flexibility
In the debate which has arisen over retirement (a debate
which ranges from the pros and cons of an earlier retire-
ment age to the link between retirement and health), one
prominent theme to emerge is the potential value to in-
dividuals of flexibility over the retirement decision, both in
terms of the age of retirement and the rate of retirement.
The extent to which individuals can exercise choice over
its timing has been identified as an important factor in en-
suring a successful adjustment to their new role.
Until recently most discussion of this choice has been link-
ed to the age of retirement, and primarily the choices
available for early retirement (in the present economic
climate, much less discussion has centred on choices
relating to leaving after the normal age of retirement, though
this issue is somewhat more prominent in the United States
than in Britain). In latter years, however, the question of the
rate of retirement (sudden vs. gradual retirement) has
become more seriously considered; the central idea here
is that by allowing a gradual separation from work, this could
facilitate a more sucessful adjustment to retirement, by
reducing the shock of moving from an employed to a retired
status.
Certainly the evidence from attitude surveys suggests that
this latter aspect of flexibility is seen as important by older
workers. A survey published in 1980 by the Department of
Employment, for example, found a markedly stronger
preference among older workers for some form of phased
retirement (e.g. working half-days, or working full-time for
fewer days) than for continuing to work full-time until retire-
ment. A national scheme which allows this type of partial
retirement during the last five years of work has been
operating in Sweden for almost a decade. Judging by the
take-up for the scheme, it has met with considerable suc-
cess;
in
1981,
a quarter of all those between 60 and 64 years
employed in Sweden had reduced their hours and were also
receiving a partial pension.
Constraints on Flexibility
In Britain, early retirement has long been possible under the
terms of a number of occupational pension schemes,
though,
except where reasons of sickness are involved, the
financial disincentive to retire early has generally been
severe. In recent years, a number of companies have im-
proved these terms of early retirement, thus extending the
degree of flexibility; a handful of companies have also in-
troduced an element of phased retirement, by reducing
working hours in the months preceding retirement. Yet the
overall degree of flexibility remains small. There are several
possible reasons for this: its relatively low priority amongst
union negotiators, employers' concern over the potential
costs involved, employees' anxiety over ensuring adequate
income to finance their retirement and government unwill-
ingness to fund the Job Release Scheme more generously
or contemplate a national partial retirement scheme on the
lines introduced in Sweden (this was looked at by the Social
Services Select Committee in 1982 but rejected on grounds
of cost).
Financial Constraints
However, a further constraining factor, which, though of
central importance, has generally received scant attention,
is the set of conditions and assumptions which currently
underpin the occupational pension schemes themselves.
Within these, the main restriction on increasing the degree
of choice is a financial one. For example, the taxation
assumptions about pension schemes act to limit the scope
for flexibility significantly. Let us look at this in more detail.
In order to allow a pension scheme tax reliefs, the Superan-
nuation Funds Office (SFO) insists that each category of
employee has a fixed retirement age. This does not preclude
an employee from retiring early or staying on after retire-
ment age. The main restriction, however, is on the level of
benefits the SFO will allow. Generally speaking, the benefits
relate to a period of service, hence someone going early
may not qualify for the full benefits that he/she would have
got had they stayed on to retirement age. Having said that,
the employee contemplating retiring early, may fulfil the ser-
vice qualification, yet the employer, through the trustees
who run the scheme, may deny him full benefits. As with
8 ER 7,5 • 1985
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