McCallum, John; Parsons, Jeanine --- "Older Workers in an Ageing Society: the Case for Legal and Policy Reform" [2002] ALRCRefJl 14; (2002) 81 Australian Law Reform Commission Reform Journal 5

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Reform Issue 81 Spring 2002

This article appeared on pages 5 - 10 & 87 of the original journal.

Older workers in an ageing society: the case for legal and policy reform

By Professor John McCallum and Jeanine Parsons*

The growth of people aged 15 to 64 years, who are currently the ‘desirable’ employees in the Australian workforce, will slump to zero in 20 years.

The working age population has been growing by about 170,000 people a year. Current demographic trends will see the working age population grow by just 125,000 during the 2020s – over the whole decade, not per annum!¹ In the years to 2020 the workforce growth is concentrated in those aged 55 years and over, ie the baby boomers born between 1946 and 1961. After that the labour force will decline, unless strategies are developed to encourage older people² to stay in the work force. This represents a major new challenge to the assumptions and practices of the Australian society and economy.

The National Strategy for an Ageing Australia (2002) and a House of Representatives Inquiry specifically addressed this issue. They examined in detail Australia’s ageing workforce and the initiatives being either explored or implemented by the public and private sectors to remove the barriers to continuing employment beyond the traditional retirement age. The Treasurer has probably made too little of this and too much of multiplying costs in the Intergenerational Report (2002). The Prime Minister has made a commitment to work to increase the participation of older workers aged 55 to 64 years by 10 to 15 percent (The Age, 30 July 2002). The current participation is around 49 per cent and the Prime Minister proposed a target of 59 to 63 per cent to match international levels. If this were achieved Mr Costello’s cost problems would mostly disappear. There can be little doubt that the government’s interest in the issue of older workers arises from the challenge of financing an ageing population.

Financing Australia’s ageing population

The ratio of people aged 65 years and over to those aged 15 to 64 years will double over the next forty years.³ The majority of Australians over 65 years (83 per cent) receive the age or service pension, comprising expenditure of around $17 billion per annum. Longer life expectancies, coupled with an increasing proportion of older people in the community, is likely to increase the cost of the age pension from the current level of 3.0 per cent of Australia’s gross domestic product to 4.6 per cent in 2050.⁴ Compared with other countries, this increase is modest and affordable.⁵

The cost increases are moderate in Australia because of the countervailing effects of superannuation payments. Projections indicate that superannuation assets will continue to rise, which should provide a firm foundation for increased self provision for a growing number of people.⁶ Amongst people of pension age today approximately 20 per cent are self funded or still working, 55 per cent are full-rate pensioners and 25 per cent are part-rate pensioners. By 2050 it is expected that at least 25 per cent of people aged 65 and above will not claim the pension but will fund their retirement from their own resources. The proportion receiving full rate age pension will fall to around one third, and the group funding their retirement from a mix of both sources will rise to about 40 per cent of all older people.⁷ So, while pension costs are moderate, health and aged care costs are set to increase from the current level of 4.7 per cent of Australia’s gross domestic product to 9.9 per cent in 2041.

Of major concern to the Commonwealth Government is the trend towards early retirement. In 1997, 77 per cent of men and 87 per cent of women had already retired from full-time work during the five years preceding their eligibility for the age pension.⁸ Research shows that rates of retirement increase dramatically at the superannuation preservation age of 55 years. Not only is there a loss in the taxation revenue that early retirees otherwise would have contributed, but there is also a cost to the social security system. The fact that many older workers have been at the forefront of major restructuring initiatives that have involved the widespread use of retrenchment processes has also contributed to the early retirement of many able workers. This is quite remarkable since research indicates that three out of five workers who face management initiated retirements would like to keep working.⁹

In addition, during the last 20 years, there has been a considerable increase in dependence on basic income support among older people. The National Strategy for an Ageing Australia shows that in 1978 there were 554,000 people aged 50 to 64 years receiving a basic income support payment and these people comprised 26.8 per cent of the people aged 50 to 64. By 1997, there were 893,000 people in this age group receiving such payments, 33.5 per cent of the relevant population. Just under 84 per cent of older working age people on income support payments receive no income from work at all.¹⁰

The issues for older workers

The Australian older worker problem is that workforce participation at older ages continues to decline for men, and older women are not increasing their participation. Most older Australians retire to live on the age pension not on their savings or superannuation, although in the future many retirees will have their age pension supplemented by their superannuation and other savings. About eight out of 10 older Australians are severe-handicap free after their 65th birthday. And yet, on the other hand, physical inactivity and social isolation – often experienced during retirement – are risk factors for disease and disability. The public interest in maintaining older people in work needs to be matched by employer interest.

Employers must think about ‘new tricks’ for older workers. The shift from manual work in industrialised economies towards work in knowledge based industries means that workers have more opportunities to continue employment in less physically demanding jobs.¹¹ Mature age workers can advise, consult and manage rather than be involved in direct labour. Where mature age workers continue to work in direct labour, technological support and work practices, such as ‘no lift’ procedures, can be employed to a greater extent. But as well we will require a change in employer attitudes. As the nature of work changes and there is increased pressure on all workers to perform a range of multi-disciplinary tasks, training will become very important. Research indicates that age is an important determinant of those most likely to access training, with mature age workers being typically less likely to receive and participate in training.¹² This is probably because older workers are often perceived by employers as providing less return for training investment. Some employers also believe that older workers have more difficulty learning, particularly technological skills, although there is no evidence to support this.

There are positive signs of change in employment practices. A 71-year old advisor has been employed by Centrelink and changes are evident in multinational corporations after major crises:

• Bertelsmann, a German media giant, has replaced its Chief Executive Officer with a 60-year old;

• Vivendi, the French media company, replaced theirs with a 63-year old;

• Xerox has taken on a 59-year old Chief Executive Officer; and

• EDS, a major US service provider, has brought in a grandfather, Jim Daley, as its new Chief Financial Officer.

A number of other cases have been documented. In Australia, for example, Westpac is looking to realign its workforce to match the demographic profile of its customer base and the labour market. It appears to be reacting to the fact that half of its customers are aged 46 years and over but only two percent of its staff is over age 56.

Research conducted by Westpac suggests that their customers want to be served by people of similar characteristics to themselves, who have similar knowledge of their experiences and the issues they are facing. The over 55 years population is growing and an increasingly large group of baby boomers is looking towards retirement and wealth creation services. In order for Westpac to provide the desired customer experience, it is looking to attract more mature age people to its workforce, who can share their experiences with customers. It is currently developing a range of career options, and supporting tools and processes, to encourage existing employees to continue working beyond the age of 55 years, and to attract a more diverse range of external clients to work in Westpac, including older workers.¹³

The Japanese example

While Australia struggles with the older worker issue, our Pacific neighbour Japan has maintained high levels of work participation of older workers. Japanese participation rates are approximately double for those aged 60 to 64 years, treble for those aged 65 to 69, and even higher for those aged 70 years and over.

The high Japanese participation rates are based on a number of features of their employment practices and pension policies. Japanese talk about work in old age as part of ‘ikigai’, the ‘meaning of life’. They have age related job change, called ‘teinen’, which means ‘job change from seniority wage positions not completely stopping work’. Japanese workers who have been through teinen job change can get the pension and still work because of large steps in the means test. In Australia, after a free limit, 40 cents is withdrawn for every $1 earned. Most older Japanese do low income, menial jobs but some high level managers experience ‘amakudari’, which literally means ‘descent from heaven’. This means that a senior national bureaucrat will move to a related smaller company. An Australian example would be Bernie Fraser’s move from the head of Treasury to an independent pension fund. These are reforms that need to be put ‘on the table’ in Australian policy debates.

There is another innovative development in Japan in their Silver Human Resource Centres. The centres provide, not paid employment for older Japanese, but something new, a transition from work/corporation to community centred life. This allows a choice of type of work and hours. These attract a low pay rate with part of the earnings going to maintain the centre. In 2001 Japan had 769 centres with 460,000 members and the whole system has been proven successful over 10 to 20 years of experience. For example, the Shinagawa Centre in the suburbs of Tokyo has 1,865 members, two aged 97 years, out of a local government population in the suburb of 72,000 people aged 60 years and over. It recruited 300 new members in the previous three years and receives Y109,000,000 from governments with a turnover of Y800,000,000 plus per year. While there are a few examples of such organisations here, this is a potential area for new developments.

The reform agenda

The reform agenda required to promote participation of older workers in Australia needs changes at the level of the worker, the employer and the work organisation, as well as with national policies. In this latter area Japan provides a successful model for change. There is substantial work done internationally on workers and employers, and of particular note are the 28 recommendations that were made by the Finnish Institute of Occupational Health,¹⁴ which were adopted by the European Union. The focus needs to be upon the ‘work ability’ of older workers namely ‘the result of the interaction between individual resources and work’.¹⁵ Individual resources include health, functional capacity, education and various kinds of work know-how. The important message is that good resources do not transform into good work ability unless the content of the work, the work community and the work environment provide the proper conditions for the older worker. Some priority issues for Australia are:

(i) Occupational health and safety:

There is significant increase in incidence of diseases, for example arthritis and cardiovascular disease, in the last 15 years of working life. Such prevalent diseases need prevention, treatment and changed work methods and practices, which allow people with chronic diseases to continue to work without disadvantage caused by the work environment. It is estimated that workplace changes are needed for about a third of workers aged 55 years and over to prevent them leaving work because of preventable, health-related diseases.

(ii) Insurance of older workers:

There is an increased insurance risk and cost associated with older workers but it is not as large as might be expected. While older workers do face increased health risks they tend to be more careful and more reliable than younger workers. It is important that particularly sensitive groups of older workers are protected against the predictable risks that they face by continuing to work. There is a danger of generalisation about the abilities and needs of older workers. Any individual older worker may need quite specific support to cope with increasing job demands arising from new technologies and organisational practices.

(iii) Changes to superannuation, age pensions and other forms of income support:

An immediate risk to the increase of the participation of older workers in the labour force is the access they have to superannuation at age 55 years. Measures such as gradually increasing the pension age for women so that it is the same as for men, and gradually increasing the superannuation preservation age to 60 (for those born after June 1964) will ease the burden of future pension outlays. Increased rates of superannuation coverage, via the superannuation guarantee scheme, will also assist in this regard.

The Commonwealth Government has recently introduced the pension bonus scheme, which enables eligible people of pension age to accrue a bonus if they choose to defer claiming the age pension while continuing to work. However the take-up rates for this are currently low.

(iv) The identification of age as a bona fide occupational qualification:

Age can be relevant for exclusion from some occupations. While airline pilots of jumbo jets may be considered too great a risk at older ages where a catastrophic health event will put many others at risk, university academics would harm no one if they suffered the same fate. However, the advances in work technologies and health monitoring and maintenance begin to challenge conventional assumptions about work ability related to age.

(v) Age discrimination in employment:

The Workplace Relations Act 1996 (Cth) provides that an employer must not terminate a person’s employment because of age unless it can be proven that maximum age retirement is an ‘inherent’ requirement’ of the job. The Commonwealth Government has abolished the compulsory retirement age of 65 years for Commonwealth statutory office holders and for other public servants. A number of state governments have also introduced anti-discrimination legislation and the abolition of compulsory retirement age. The evidence is that such changes, of themselves, have no impact on participation rates.¹⁶

The age discrimination that many mature age workers encounter in the work force also needs to be addressed via awareness and education campaigns. The media has a role to play here, and some of the programs offered by state governments – such as the provision of training and education services that provide information to employers and advocacy groups on age discrimination and compulsory retirement matters and the offering of best practice awards promoting mature age employment – could be evaluated with a view to expanding them to other states.

(vi) Complex patterns of employment, part-time, casual, shared jobs etc:

The Commonwealth Government has introduced flexibility into the Workplace Relations Act 1996, which can be accessed by employees and employers to develop phased retirement approaches and other flexible arrangements to meet the needs of older workers. This will enable mature age workers to combine aspects of their employment and income earning with family involvement and caring responsibilities. If the participation of older women is to increase, more flexible work patterns will need to be developed, which fit better with the family commitments of older women.

(vii) Government incentives:

In order to overcome the difficulties that older people experience in re-entering the workforce, the government needs to provide incentives and offer programs to remove some of the barriers. An example of one program is the initiative introduced in 1991 by the Commonwealth Government entitled A Fair Go for Older Workers. The program is designed to assist older jobless people by providing additional places in employment, disability, education, training and transitional programs. Some state governments also provide funding for computer equipment and programs to assist unemployed people to upgrade skills or obtain new skills, and to motivate disadvantaged job seekers, including older people, by boosting self confidence and self esteem so as to increase employment prospects.

In conclusion, the key age groups shaping the future of the workforce for the next few decades are not younger people, but the baby boomers. An ageing Australia has a problem with work at older ages but Japan doesn’t, so we can learn from international best practice in this area. There are policy reforms that need to be considered to improve motivation to work and remove disincentives to remaining at work. As well, work place practices need to be developed to enhance the ‘work ability’ of older workers, such as those already being considered by the European Union. The key issue is employment growth for all ages which will generate increased economic growth and prosperity. If Australia is successful in continuing to reduce its unemployment rate for all age groups, and particularly unemployment and involuntary retirement for the older age groups, this will impact positively on the community’s capacity to finance Australia’s ageing population. We can expect legal, organisational and policy reform to have a high priority for the next few years.

* Professor McCallum is Dean, College of Social and Health Sciences, University of Western Sydney. Jeanine Parsons is a Research Assistant with the College of Social and Health Sciences, University of Western Sydney.

Endnotes

1. Access Economics, Population Ageing and the Australian Economy, (2001), Commonwealth of Australia Department of Health and Aged Care, Canberra.

2. There is not a universal definition for ‘older people’ or ‘older workers’. There is a growing trend in policy discourses to define ‘older workers’ as those being aged 45 years and over.

3. National Strategy for an Ageing Australia, (2002), Commonwealth of Australia, Canberra.

4. OECD, Economic Outlook Series, Fiscal Implications of Ageing: Projections of Age-Related Spending, (2001).

5. OECD, Economic Surveys Australia 1999, (1999).

6. National Strategy for an Ageing Australia, (2002), Commonwealth of Australia, Canberra.

7. The National Strategy for an Ageing Australia, Independence and Self Provision Discussion Paper, (1999), Commonwealth of Australia, Canberra.

8. The National Strategy for An Ageing Australia, Employment for Mature Age Workers Issues Paper, (1999), Commonwealth of Australia, Canberra.

9. Access Economics, Population Ageing and the Australian Economy, (2001), Commonwealth of Australia Department of Health and Aged Care, Canberra.

10. The National Strategy for An Ageing Australia, Employment for Mature Age Workers Issues Paper, (1999), Commonwealth of Australia, Canberra.

11. Ibid.

12. Ibid.

13. Westpac brochure (in print).

14. Finnish Institute of Occupational Health, Trends and implications for occupational safety and health in the European Union, (1999), <agency.osha.eu.int/publications/forum/forum5/forum5_en.pdf>.

15. J Ilmarinen, Ageing Workers in the European Union: Status and Promotion of Work Ability, Employability and Employment, (1999), Finnish Institute of Occupational Health, Helsinki, 46.

16. F Reid, Age discrimination and compulsory retirement in Australia, (1988), paper presented at the University of New South Wales.