Phased retirement staves off talent exodus

2008

The days of hitting your 65th birthday and marching straight out of the door with a carriage clock are long gone. More and more U.S employers struggling to cope with the ageing of the baby-boomer generation are now encouraging workers to go gradually into retirement.

Research by HR consultancy Hewitt Associates has argued that, with U.S employers are facing an "unprecedented" talent shortage as a quarter of workforce nears retirement, phased retirement programs are increasingly being used to ease the transition.

Its poll of more than 140 mid-size and large employers found that two-thirds felt offering part-time employment on a year-round basis was one of the most effective ways of retaining near-retirement workers.

Similarly, more than a third felt that giving near-retirement employees access to retirement benefits was effective in helping to retain talent.

Phased retirement programs also helped in providing additional income to supplement retirement incomes as well as providing workers with access to employer-subsidised healthcare, both increasingly important issues in the U.S workplace.

More than half of the firms polled had been actively evaluating the impact potential retirements could have on their organisation, and six out of 10 had developed or were in the process of developing programs to retain targeted, near-retirement employees.

Nearly half already offered some type of phased retirement arrangement, although very few (five per cent) had actually formalised it.

"With the rising tide of boomer retirees, employers will be losing key talent at a time when attracting and retaining skilled workers will be more important than ever," said Allen Steinberg, a principal at Hewitt Associates.

"At the same time, rising medical costs, lengthening life spans and the declining prevalence of traditional pension and retiree medical benefits mean that employees will either have to work longer, save more or live with significantly less than they are accustomed to," he added.

"As these trends converge, we believe phased retirement programs will continue to become more attractive options for both employers and employees – they provide employers with new ways to retain critical talent and, at the same time, help employees meet their needs," he continued.

Employers were also improving their information-gathering efforts and, in particular, looking to gather information from employees nearing retirement eligibility about what they wanted and what would work for them.

"Working with senior management to determine how phased retirement programs will benefit both employers and employees is an important first step. However, in order to create a truly successful program, it's critical employers understand employees' perspectives," pointed out Steinberg.

"Gathering formal input from employees through focus groups or other initiatives will enable companies to design programs that can truly help with retention needs—but do so in a cost efficient way.

"This is particularly important for employers concerned about workers in specific roles or with specialised skills that represent the greatest risk of loss to the organization," he added.

Beyond information gathering, employers were developing a more robust understanding of the types of initiatives that would effectively retain key groups, as trying to understand the common barriers to the adoption of phased retirement programs.

A significant majority of the employers said one of the largest benefits to near-retirement employees was the ability to make a gradual transition from the active workforce to retirement.

"Developing phased retirement programs specifically aligned to the needs and desires of the workforce are really effective at helping companies decrease the loss of key skills within their organization," advised Steinberg.

"Perhaps one of the easiest – and most cost-effective – ways to determine what will be most beneficial to near-retirement employees is to simply ask them what type of arrangement would be most effective.

"Is it the ability to work part-time on a year round basis or is it some other type of flexible arrangement, such as seasonal or project-based assignments? Do they want to step away from demanding management roles? What many companies will find is that their existing flexible work arrangements may be easily adaptable to their retirement-eligible employees," he pointed out.

Along with retaining current employees, employers were also actively looking at their policies toward rehiring retirees, Hewitt argued.

While almost half indicated they currently had policies in place that limited the ability to rehire retirees, a similar percentage said they were likely to review their rehiring policies in the future.

Whatever the overall picture, a separate poll by Hewitt has indicated that many women are still getting a raw deal when it comes to retirement.

Women not only needed to save more for retirement than men, but the gap between what they needed to save and the amount they are actually were saving was larger too.

This gap would continue to grow because of lower salaries, conservative investing, longer life expectancies and higher retiree medical needs, Hewitt predicted.

"There are multiple barriers women face that automatically put them at a disadvantage when it comes to meeting adequate retirement income levels – some of which are preventable and some of which are not," said Alison Borland, defined contribution consulting practice leader at Hewitt Associates.

"But despite these challenges, it is possible for women to make a significant impact on the amount they amass in their retirement nest eggs if they are willing to understand the challenges they face and take a few small steps toward improving their saving and investing behaviours," she added.