New research from the Association of Executive Search and Leadership Consultants (AESC) indicates that the potential EU workforce could shrink to 217 million by 2050, down from 239 million in 20151. A major reason causing this decline is an ageing workforce, and it is affecting the UK as well as many other countries across Europe.
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An ageing workforce is a serious concern for businesses. Longer work hours and changing work preferences can lead to operational inefficiencies and financial pressures, particularly for older workers. More health-related issues may also occur.

However, employers can manage these risks with proper planning. To stay competitive, business leaders may consider building effective succession plans to handle increased absenteeism, introducing new training programmes, and fostering a culture that attracts and retains a highly skilled and experienced workforce. This proactive approach ensures continuity and leverages the experience of older workers while preparing the next generation for leadership roles.

Understanding the demographic shift

The demographic shift towards an older workforce is clear, with a significant proportion of employees nearing retirement age. In the UK, the Office for National Statistics (ONS) reports that the size of the UK population aged 85 years and over will increase from 1.6 million (2.5% of the total population) in mid-2021 to 2.6 million (3.5%) by mid-2036.

In action: The Impact of an Ageing Workforce in Different Sectors

  • Social housing sector - Social housing, which offers affordable rent options for individuals and families, currently makes up 17% of households in England and Wales, and 23% in Scotland. With rising demand, 1.29 million households were on waiting lists in England as of March 2023, reflecting a 6% year-on-year increase2.
    Amid this growing demand, London's social housing sector faces a looming labour shortage, needing up to 31,000 additional workers over the next five years to meet planned investments3. The ageing workforce, with many nearing retirement, poses a critical challenge in delivering and maintaining safe housing, putting further strain on the sector's ability to meet the capital's housing needs.
  • Education sector - An ageing workforce can present challenges in sectors like education, where employees may need to adjust their roles or working capacity. Employers are often legally obligated to provide support, such as offering alternative roles or opportunities for older staff to develop new skills.
    In a critical scenario, the UK's medical schools are facing an ageing academic workforce, which poses a risk to the future of medical education and research. In 2023, 36% of clinical academics and 65% of professors were aged over 55, with many nearing retirement4. This trend highlights the need for proactive workforce planning to address potential skill gaps.
  • Public sector - A sector-wide survey found that only 4.6% of the local government workforce in England and Wales is under 25, while 66.9% are aged 40-60, indicating an unsustainable workforce composition. Additionally, 28% of staff aged 18-34 plan to leave the sector within four years. This impending retirement of older workers, combined with younger employees' reluctance to stay long-term, poses a significant gap that could affect service delivery in the future5.

Financial strains and effective management

As employees approach retirement, organisations face increasing financial pressures, especially with defined benefit (DB) pension schemes that require employers to guarantee a fixed retirement income, creating significant liabilities. In contrast, defined contribution (DC) schemes shift the risk to employees and reduce these liabilities for businesses. However, it should be noted that some forms of occupational DC plans always give rise to financial pressures which means that increasingly businesses are adjusting their DC approach to help limit exposure.

Additionally, older employees often incur higher healthcare costs, driving up insurance premiums. To manage these challenges, companies must evaluate the sustainability of DB pension schemes and explore tailored healthcare solutions that can mitigate rising costs while supporting the ageing workforce.

Risk mitigation strategies

  • Pension planning: To manage the financial strain of an ageing workforce, reviewing and adjusting pension schemes is imperative. Ensuring that these schemes are sustainable in the long term is critical, especially considering the potential increase in retirees. Strategies such as introducing or amending DC plans or offering phased retirement options can help mitigate the financial impact.
  • Healthcare costs: An older workforce could drive up healthcare costs due to the need for more extensive services. To manage these expenses, organisations should collaborate with insurance providers to tailor group health and disability policies that address the specific needs of older employees. Further, preventive care programmes, wellness initiatives, and coverage for age-related conditions can significantly reduce the overall burden on healthcare plans while ensuring that older workers receive any specialised care they may require.
  • Legal and compliance: From a legal and compliance perspective, evolving health and safety regulations can impact the management of older employees, particularly in physically demanding roles. Organisations must stay informed about these regulations to ensure compliance and protect their workforce. Regular risk assessments and adaptations to workplace practices can mitigate potential legal risks and create a safer environment for all employees.

Is there a single solution to manage the ageing workforce?

There is no cookie-cutter solution to managing the ageing workforce. Organisations need a comprehensive and multifaceted approach to implement targeted strategies such as flexible working arrangements, ongoing training and development programmes, health and wellness initiatives, and robust anti-discrimination policies.

Retention strategies

Retaining older employees can benefit organisations, as they bring invaluable experience and institutional knowledge. To retain older workers, particularly in situations where they may no longer wish to work full-time, there are potential strategies that may be implemented:

  • Gradual retirement: A gradual retirement plan enables employees to slowly reduce their work commitments while transitioning into retirement. This approach helps by retaining critical skills and knowledge while allowing employees to ease out of the working environment. This strategy not only preserves organisational continuity but also supports employee wellbeing during this significant life change.
  • Mentorship programmes: Leveraging the expertise of older employees by involving them in mentoring can work well from both sides. These programmes can transfer knowledge to younger employees, ensuring critical skills and experience are preserved as older workers retire. Such initiatives benefit the organisation and enhance employee satisfaction and engagement.
  • Flexible working: Offering part-time roles, phased retirement plans or consultancy positions can help accommodate older employees who may prefer not to, or be unable to, work full-time. This adaptability not only retains valuable talent but also enhances job satisfaction.

How can Gallagher help?

We offer consulting services via our Gallagher Benefit Services team across actuarial and retirement, investment and risk transfer to help you manage the risks of your pension scheme. We also offer pensions administration and communications. Contact us to find out more: https://www.ajg.com/uk/connect-with-us-retirement/


Sources

1 "Leveraging Europe's Aging Workforce," AESC, accessed 11 November 2024.

2 "Cyber Security: Resilience on the Home Front," Housing Digital, 13 May 2024.

3 Gayne, Daniel. "London's Social Housing Sector at Risk of Labour Shortages, Says Report," Housing Today, 12 Jul 2024.

4 Rimmer, Abi. "Ageing Workforce Is Putting Future of Medical Education and Research at Risk, Warns Medical Schools Council," The BMJ, 5 April 2024.

5 Boakye, Kwame. "'Action Needed' as 28% of Young Recruits Plan to Leave Local Government," Local Government Chronicle (LGC), 5 February 2024.


Disclaimer

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission, or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

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