27th January 2016
Jelf’s head of employee benefits Steve Herbert says UK employers face a productivity challenge whatever the outcome of the vote. But could a smarter approach to the workforce help solve the problem?
Within the next 24 months – and possibly during the course of this calendar year – the UK electorate will be faced with one very big decision; should we remain part of the European Union or go it alone?
The outcomes of this referendum will naturally have a huge – and as yet largely unquantified – impact for companies and traders across the land. Until recently I suspect that the business community were perhaps rather relaxed about this situation given that the polls always seemed to favour the status quo. This may now be changing.
Much as we would all hope that votes will be cast on a considered basis, with due and detailed thought for the pros and cons of the argument, the reality may be rather different. It is undeniable that both the migrant crisis and terror threats in Europe have the potential to play well to the isolationists, and may also be a pivotal influencing factor for the undecided voters (which, anecdotally, would appear to be most people even now). Resurgence of either issue in the minds of the British public could well tip the vote towards an exit decision.
So where would that leave UK business? Much greater and better informed minds than mine have pondered this question – and the key concern appears to be around the negotiation of trade deals once we are outside of those inherent within the European Union. But surely that is only half the issue. It’s one thing being able to trade with different geographical areas; it’s another being competitive enough to win the contracts.
And here the UK may be at a disadvantage. For the country to be competitive it needs to be productive. Yet all the evidence suggests that as a nation we are some way off being the master of productivity. This Office for National Statics’ graph* published last year shows how the UK compares in hourly Gross Domestic Product (GDP) terms against other G7 nations:
It will come as little surprise to find that the UK is not as productive as Germany or the US. Yet it is more chastening to realise that we also trail nations with arguably worse industrial relations and/or economic issues such as Italy and France. It has even been suggested that the French could take one day off every week and still match Britain’s productivity. In fact the only economy we better on productivity within the G7 is Japan, a nation that has had its share of economic challenges in recent decades.
Why is the UK so far off the pace against our major economic competitors? There are many factors that influence productivity, and a key one is generally accepted to be employee engagement.
Now employee engagement is a nebulous beast, and often means different things to different people. For myself I like this definition from Wikipedia:
“An “engaged employee” is one who is fully absorbed by and enthusiastic about their work so takes positive action to further the organisation’s reputation and interests.”
Or, in simple terms, an engaged employee will go that extra mile for job and/or employer.
It follows that if the UK is to close the productivity gap – and become more competitive in a post referendum world – then we need to work on engagement.
So how can engagement be improved? There are many facets to engagement, with good communications and line-management both being pivotal. And of course pay and benefits also have a key role to play.
Perhaps a pay increase for all is the solution? This would be a big ask for most employers, and the engagement improvement is likely to be only temporary, and not necessarily as successful as a more targeted approach. Employers should look to use their budget more wisely, and on the most receptive targets.
Given the above, which employee groupings need to be most nurtured to bring better engagement and productivity? This takes us to another major issue for the country. The UK working population is currently undergoing a radical change. In 2014 the DWP**estimated that 26% of the working age population was aged between 50 and State Pension Age. The same report estimated that this number will grow to 32% by 2020.
Or, put another way, those aged 50 or above represented 1 in 4 workers 2 years ago, but will be just under 1 in 3 by the next General Election. A huge shift in workforce demographics over a very short period of time.
This will probably be a very good thing for UK business. Older workers usually have inherent knowledge and skills, often hold key client and supplier relationships, and may be less prone to spurious absences and changing employer. They are potentially the gold dust in any workforce. It therefore follows that employers should seek to keep these employees as highly engaged as is possible.
Yet it should not be overlooked that the needs, drivers, and aspirations of this older grouping may be different from their younger colleagues. And employers need to therefore build an engagement policy that meets these challenges head on.
To my mind there are several separate areas that employers will need to address to get this right.
1) The “can’t retire” issue
In 2010 the removal of the Default Retirement Age became law, and as a result it is no longer possible for employees to be forced to retire on age grounds alone. This is, of course, a good thing for personal liberties. Yet by the same token this may represent a major engagement challenge for employers.
The problem is that for many years the UK has been under-saving in pensions, which is why Auto-Enrolment has now been introduced. Yet this still leaves the issue of the thousands of older employees who have little in the way of retirement savings to convert into a pension income. Many older workers who would probably like to fully retire are currently faced with a stark choice of retirement to relative penury, or perhaps continuing in a job that they might no longer enjoy. Most will probably opt for the latter, but in this situation could be forgiven for lacking real motivation or engagement.
Employers need to tackle this issue. Whilst it will be impossible to prevent some reaching the above position, financial education of staff will help prevent this becoming a regular occurrence within the workforce.
Such education will also perhaps limit some of the poor financial decisions that may already be in train following the introduction of Pension Freedoms last year. Data from the Financial Conduct Authority (FCA)*** this month suggests that in the quarter July to September 2015 (the second period after the new Freedoms were introduced) less than 1 in 3 (32%) of the pensions accessed by savers where utilised to provide a retirement income. A worrying statistic that suggests that retirement savings are being used for shorter-term financial need rather than pension income.
2) Making pensions attractive to older workers
There was a period where older employees (and in particular those who had not been able to make pension savings until late in their working life) found it difficult to see a tangible return from joining an “average” workplace money purchase pension scheme. This was often because of the relatively short period of saving available, loss of access to the contributions, and poor annuity conversion rates.
This above issue has been rectified with the introduction of the new Pension Freedoms. The entire retirement fund is now available – complete with employer contributions – to any saver aged 55 and above. There is also no longer any need to lock into annuity rates either.
So pensions and workplace saving should once again appeal to all older workers – and perhaps more so given their proximity to usage age. It follows that re-educating employees to the realities of this change can only help engagement and productivity. After all, a benefit is not really doing its job unless it is perceived as such by its recipient.
3) Health conditions and an ageing working population
Last, but far from least, we should recognise that an older workforce may result in more employees with long-term health conditions in the workplace.
Below is a selection of rather scary facts included in a report issued by The Work Foundation**** last year:
This is a growing problem. With a rapidly aging working population the number of UK employees with LTCs is predicted to rise to 40% by 2030.
These are issues that are largely unavoidable – yet that does not mean that the employer should be fatalistic about the possibility of increased employee illness and/or absence.
Employers can and should reinforce health and well being messages to all employees on a regular basis. The cost of doing so can be negligible, yet it can help employees better manage their own health to the benefit of both parties.
Of course ill-health absence is sometimes unavoidable. Yet benefits can be used to speed diagnosis, intervention, and return to the workplace. And, should a return to work not be possible, then benefits can be used to ensure that the employee and his/her family are looked after as well.
A hidden bonus for employers of such an approach is that workforce engagement is often driven by how employees perceive the treatment of a colleague in an extreme situation. If the wider grouping perceives that the employer is helping (or at least trying to help) a co-worker in such circumstances, it is likely to have a positive impact on engagement levels across a wider number of employees.
The bottom line is that British companies need to improve productivity. How each employer arrives at this outcome will vary, but employee engagement – and a better use of both benefits and financial education – may represent one of the most cost-effective options to achieve this ideal.
It is also the case that the UK workplace must gear-up for an ever growing number of older workers, and it follows that employee benefits need to remain relevant, accessible, and appealing to this grouping as much as their younger colleagues.
Regardless of whether the UK takes the Brexit off-ramp, it is clear that the country needs to close the productivity gap with our economic competitors. Can any employer really afford not to look at this issue afresh?
Steve Herbert is Head of Benefits Strategy at Jelf Employee Benefits