The Department of Education in Northern Ireland has approved a £33.1m scheme offering premature retirement terms to members over 55 years old to make space for new hires in the workforce.
The move comes as employers consider how to ensure members can afford to retire fully following freedom and choice, rather than gradually spending their pot after turning 55 but before reaching state retirement age.
The employer can no longer control their workforce in the way they used to
Richard Butcher, PTL
More than 2,300 teachers over the age of 55 are working in Northern Ireland; up to 500 of them are expected to retire under the scheme. They will be replaced by recently qualified teachers.
In a statement announcing the Northern Ireland initiative, the Department of Education described it as “part of a dual approach to a strategic cost reduction scheme for schools”.
Karen McWilliam, head of public sector benefits consultancy at Aon Hewitt, said similar offerings to remove older employees from the workforce are increasingly common in light of government pressure on public sector budgets.
She said: “Central government grants are being stretched… We are seeing voluntary severance to try and reduce staff numbers.”
She said that flexible retirement is also frequently used to gradually reduce the workload of employees transitioning into retirement while a replacement is being trained.
Workforce management a growing concern
The Department of Education's initiative reflects wider concern about workforce management. One of them, albeit rooted in defined contribution rather than defined benefit, is that older members using freedom and choice may spend too much of their pot and be forced to continue working beyond retirement age.
Andrew Cheseldine, partner at consultancy LCP, said: “If people take their money out of their DC pension pot, what happens when they get to state pension age and can’t afford to retire?”
He added: “If you’ve got people with a simple DC pot it isn’t going to get very far.”
The previous near-compulsion to buy an annuity was advantageous for many employers as it made retirement – at least from the scheme’s perspective – a single point in time and therefore useful for managing employees out of the workforce.
Richard Butcher, managing director at professional trustee company PTL, said: “The employer can no longer control their workforce in the way they used to. The consequence is you can have over-55s saying, ‘No thanks, I don’t want to retire.’”
He added that the average UK retirement age was “creeping up”, but that problems posed by people unable to retire were unlikely to materialise for some time.
“At the moment it’s a relatively minor issue because there’s still a lot of DB in the system,” he said.
He noted that some public sector workers, such as general practitioners, might face the opposite problem, as many have their benefits capped and, being unable to accrue further benefits, have “no incentive to stay on [in employment] other than to get their monthly cash”.
