An Investigation of Pensioner Employment

Executive Summary

This report explores the employment characteristics, the social and economic conditions and the opportunities and barriers for people beyond pensionable age (pensioners) who continue to work. Pensioner employment has risen consistently over the past decade, including throughout the last recession. In 2015 in Scotland, around 80,000 pensioners were in work, of which 35% were working full-time and 65% part-time. Around 61% of pensioners in work were employees whilst 34% were self-employed ^[1] .

Other key employment characteristics of working pensioners are:

• They are mostly employees, but are more likely than any other age group to be self-employed
• The number of over-employed pensioners has grown considerably over the past decade
• Working pensioners work mainly in medium-high skilled occupations but female pensioners work considerably more in medium-low and low skilled occupations than male pensioners
• There are relatively higher gender pay gaps in older age groups
• More women than men have caring responsibilities across all age groups, with the exception of the over 75s

Over half of workers over state retirement age in Scotland report that they are not ready to stop working yet (57%) ^[2] . Other reasons for pensioners choosing to remain in work include:

• Income to help cover essential items, such as bills (13%)
• To boost pension income (8%)
• People wanting to continue to use their skills and/or employers needing those skills (7%)
• Income to help cover discretionary spending (6%)
• Other (20%) including opportunities to work flexible hours, desire to stay mentally/physically fit and a wide range of personal reasons

Between 2004 and 2015, pensioner employment rose by 94%, whilst the employment rate increased from 5.2% to 8.2% over the same period. This rise in pensioner employment has highlighted a need to explore the social and economic risks and benefits of working beyond state pension age and to understand the reasons why more people are choosing to work into retirement. One of the main reasons for this is likely to be the introduction of the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 that abolished the default retirement age in April 2011. This prevents employers from compulsorily retiring workers once they reach the age of 65.

Scottish Government analysts have undertaken research to investigate the characteristics and conditions of pensioner employment in Scotland and assess whether there is a need for additional support for pensioners who are already working, or who want to work but find it difficult to do so.

Population ageing puts pressure on all Governments to encourage working longer, but this should be accompanied by efforts to ensure work is fair

Over the next two decades, most Western countries will face large increases in the pensioner population as a proportion of the total population. The number of pensioners in Scotland is expected to increase by around 30% between 2014 and 2040, compared to only 1% for the working age population.

However, perceptions of older people as wholly 'dependent' on the working age population are both unhelpful and not supported by the evidence. Although pensioner households are generally more reliant on cash benefits and benefits in kind than working age households, they remain substantial contributors to the public finances through income tax and indirect taxation such as VAT. Our analysis also shows that lower income retired households contribute disproportionately to indirect taxation as a percentage of their gross and disposable income.

Population ageing will, however, increase pressure on all governments to balance expenditure on the older population with tax revenues. Part of the UK Government's response to this was the legislation change to abolish the default retirement age, as noted above, and the increase in the state pension age, which will encourage people to work longer, particularly those more reliant on state support. However, the Scottish Government believes that enabling fair employment for pensioners, who want or need to work, requires a broader range of policy support.

Higher income households gain more from working beyond pensionable age but critical barriers remain for those in low income households who want to work

Working beyond retirement age has obvious financial benefits for households but good quality work can also improve individuals' health and well-being, as well as the range and quality of their social interactions. Good work should be a choice available to all, regardless of age, but in reality it is more likely to be available to people in better off households.

Analysis of income data presented in this report shows that pensioner households with the highest total income also receive the highest proportion of total income from earnings (as opposed to income from benefits or pensions):

• Within the 20% highest income pensioner households, couple households receive 34% of their total income from earnings, while single pensioners receive 20% of income from earnings.
• But within the 20% lowest income pensioner households, couple households receive only 2.4% from earned income, while single pensioners receive 2.2%.

In general, low income households are more likely to face critical health barriers to obtaining good work, and therefore remain reliant on state pension and benefits. Of adults aged 65 to 75:

• 78% in the 20% highest income households are in good or very good health, compared to only 49% in the lowest income households
• 56% in the bottom fifth of the pensioner population have a limiting long-term health condition, compared to 41% in the highest income households

People in lower income households also face lower life expectancy and expect to be healthy for less time after pension age.

State pension uprating is generous compared to working age benefits, but cash entitlement is still low

The wider economic conditions of pensioners are important when considering what financial pressures or constraints influence the decisions of low income pensioners with respect to continuing working. It is likely that there are groups of pensioners who are not too far beyond pensionable age, who are struggling on very low incomes and are unable to work.

The triple lock uprating mechanism ensures relatively generous annual increases in the state pension compared to the current UK Government's freeze on many working age benefits until 2019/20 - which will amount to a substantial cut in real terms over time. However, the current approach to the state pension reflects the fact that, relative to average earnings, state pensions in the UK are low compared to other OECD countries. The state pension suffered devaluation since the 1979 Conservative Government abolished the link between the state pension and earnings and has never recovered its previous level relative to earnings since then.

Despite state pension entitlements being low compared to other countries, poverty has decreased more steeply for pensioners than children and working age adults over the last decade; and pensioner couples are more able than low income working age households to achieve the Minimum Income Standard - the level of income required for a socially acceptable quality of life. But it is of particular concern that only between 61% and 64% of eligible pensioners were estimated to claim pension credit in 2013/14 - the benefit which guarantees a minimum level of income for the very lowest income pensioner households.

Next Steps

As can be seen from the key findings above, there are a range of concerns about aspects of pensioner employment. It is therefore proposed to explore these concerns in more detail in a second stage of analysis, which will be taken forward in coming months.

Implications for policy

The challenges of supporting people to be able to continue to work beyond pension age are similar to supporting older workers in general - flexible working to suit the employee, reduced hours where needed (each to help people balance work with caring responsibilities), retraining, and making allowances for medical appointments. This requires working with employers to help them understand the opportunities and benefits of retaining/recruiting older workers and how to do this while avoiding any negative impacts on the employers' business.

In addition, the Scottish Government is providing other forms of support on the following key issues, which are expected to improve conditions for working pensioners:

1. Health conditions are likely to be a significant barrier to work for pensioners who need additional income

• The Scottish Centre for Healthy Working Lives already provides advice to employers on supporting workers with health conditions as well as how health and wellbeing can be supported in the workplace.
• Fit for Work Scotland offer support to workers who are at risk of going off on long term sickness absence, which will particularly benefit those more at risk such as older workers.

2. High gender pay gaps for older age groups reduce work incentives for those approaching retirement

The Scottish Government has a comprehensive range of policies intended to help accelerate the long term decline of the pay gap across all age groups. Some of the policies targeting older age groups include:

• Providing further investment to health and social care partnerships to enable the Living Wage to be paid to care workers, mainly women, supporting vulnerable adults.
• Committing to establish an 'Advisory Council on Women and Girls' to advise on tackling workplace and occupational segregation and other issues relating to gender equality.
• Committing to work with employers to pilot 'Returners' scheme, which will bring experienced women back into their previous career after a break.

Scottish Government analysts are planning further analytical work on the gender pay gap to investigate what is driving a persistent pay gap in over 50s.

3. Levels of investment in training opportunities for older workers have been low for the past decade

The Scottish Government recognises the importance and value of older workers to Scotland's economy and has a range of policies intended to support older people's employability:

• Makes progress towards advancing older people's position in the labour market and boosting training opportunities for this group.
• Continues to fund short courses that lead to work or career progression.
• Continues to work closely with Skills Development Scotland ( SDS), providing older workers with specific guidance and advice to get back into work or providing costs towards learning and training opportunities through Individual Learning Accounts.

4. Working pensioners are more over-employed than under-employed and therefore seek opportunities for more flexible working

The Scottish Government recognises the importance of high quality flexible options for working pensioners and is taking steps to encourage and support employers to understand the needs of working pensioners who have caring responsibilities, whether for elderly relatives or grandchildren and provide working patterns which suit those needs. In addition, the Scottish Government is an active partner in the Family Friendly Working Scotland ( FFWS) Partnership.

The FFWS Partnership has taken steps to highlight to employers the support that working pensioners require, including:

• Working closely with Carers Scotland, who operate the Carer Positive scheme. The scheme has been promoted to employers regularly at employer events.
• Delivering the annual Scottish Top Employers for Working Families awards, celebrating organisations that demonstrate excellent practice in relation to family friendly and flexible working. In recognition of the importance of supporting carers, including elderly carers, one of the award categories is the 'Carers Scotland Best for Carers and Eldercare'.