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The Balancing Act

Are employers really prepared for the demographic crunch?

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By Julia Turney

Partner, Head of Platform and Benefits

The last few years have imposed a slew of challenges on businesses, with financial turmoil, a global pandemic and geopolitical events having a significant impact on many firms. While long-standing issues, such as the skills gap and productivity puzzle, have troubled employers for some time, two emerging factors are now becoming more prevalent.

These two factors being the needs of a steadily ageing workforce, coupled with increasing mental health considerations among younger generations. The working world has faced numerous challenges in recent years, and these critical issues are adding pressure on employers to build comprehensive reward and benefits propositions, reduce employer risk, and ensure the sustainability of their organisations.

            This has resulted in a delicate balancing act for businesses as they work to identify, assess and manage the challenges at either end of the spectrum, while securing their future.

Our research shows that while many UK businesses believe they are equipped to handle these challenges and have ‘adequate’ support structures in place, few are aware of the full scale of the problem. But with these issues showing no signs of disappearing, one big question remains - are businesses truly prepared?

The ageing workforce

Crucial considerations

A number of driving factors are contributing to the ageing workforce; a problem that has become more apparent in recent years. The pandemic, economic uncertainty, geopolitical events and the cost-of-living crisis have all in some way contributed to the rise in workers staying in employment for longer. Each of these factors has contributed to the fact that people are not earning as much – or crucially – enough. And for many savers, this is a growing concern.

This has resulted in people having to reconsider – or even abandon – their retirement plans. More retirees are returning to work after discovering their pensions were insufficient to cover living costs, a problem exacerbated by longer life expectancies requiring additional financial considerations.

Many employees are staying in work longer to build larger pension pots, with many accessing their funds early to cover bills while they continue to work. Research conducted last year by the Centre for Ageing Better[1] revealed the number of over 65s working in the labour market has more than doubled since the turn of the century.

This has placed an even greater emphasis on the need for employers to have comprehensive and attractive benefits packages in place, particularly important as inadequate pensions and the cost of healthcare in retirement are two of the biggest driving factors of an ageing workforce. At the same time, employers must balance 
this with a company culture that aligns with employee values and an inclusive working environment.

What are the risks?

An ageing workforce brings with it a number of notable considerations which, coupled with the impact of mental health challenges, is squeezing businesses costs and performance. The skills gap issue is one that has been growing in prominence for some time. This is amplified by the fact many older workers possess skills younger employees lack. This problem can be addressed from the ground up with solutions including apprenticeships, training and necessary funding. However, less attention has been given to the effects of an ageing workforce and its relationship 
to the skills gap up until now.

Government statistics show the employment rate of people aged 50 to 64 years
has significantly increased in the long-term. Meanwhile, the employment rate has increased by 4 percentage points in the last 10 years (from 67.3% in 2013) and by 
7.3 percentage points over the last 20 years (from 64.0% in 2003)[2]. The increase in older workers suggests the skills gap is increasing in tandem with this rise. This is in turn making it harder for businesses to recruit an age-diverse workforce which meets the needs of the business. 

Though they may have added experience, it’s more likely for older workers not to have the levels of formal training and study as younger colleagues, as well as literacy of more recent technology. And, according to our recent research, 28% of businesses have had to hire to fill skills gaps associated with an ageing workforce, and 22% have also been forced to change their recruitment processes. One of the other stand-out issues is the impact this challenge is having on productivity.

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This is made clear by our research. Of those with a defined contribution (DC) pension

48%

are not confident they will have a comfortable retirement – a stark indicator of a potential looming crisis.

35%

32%

29%

also believe their pension savings are insufficient for their age

are unable to save enough on their current income

list a lack of additional savings or investments as a barrier to retirement confidence

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Our research shows those aged 55-68 are the most prominent age group to be affected by long-term sickness.

Employers' concerns about an ageing workforce

Absenteeism ranks top of employer concerns. All of this points to serious considerations relating to productivity, as an increase in older workers means statistically businesses are more likely to have staff with long-term sickness issues.

78%

Absenteeism (due to ill health)

The rise of mental health challenges in a younger workforce

Crucial considerations

The rise of an ageing workforce is just one side of the coin. The flipside contributing to the ‘squeeze’ experienced by businesses is the increasing instances of mental health issues having a growing impact, especially on a younger workforce. Our own research finds business leaders stated they had observed mental health services being most utilised by younger employees, with 69% believing these services were well-utilised by staff aged 25-34. Notably, while mental health issues were observed across all age groups, they were most prominently observed in younger cohorts. 51% of business leaders reported a significant impact among employees aged 25-34, with decreasing concerns among older workers.

This is a serious issue, as the number of economically inactive workers unable to work due to mental health conditions has increased. The Office for National Statistics (ONS)[3] shows that, in 2023, 1,351,267 people aged between 16-64 were inactive due to depression, bad nerves or anxiety – a rise from 965,119 in 2019. On top of this, a further 884,715 were inactive due to mental illness, up from 671,658
in 2019.

What are the risks?

When mental health absenteeism is considered alongside the fact the number of jobs for graduates is falling, it clearly highlights the recruitment and skills gap issues facing many businesses. This, coupled with the fact employers are struggling to recruit younger employees, is a contributing factor causing the widening of the 
skills gap. 

            64% of employers said their organisation has seen a rise in absenteeism due to mental health issues across all age groups, emphasising the effect this has on productivity, as well as demonstrating the difficulties associated with recruiting talent.

Our research also indicates this data could only be the tip of the iceberg. There is a notable lack of awareness and understanding surrounding neurodiversity or mental health conditions in the workplace. Our research found 38% of business leaders don’t believe they have incidents of cognitive conditions in their workforce (such as dementia or Alzheimer’s), and 28% stated the same in relation to learning difficulties. And nearly a quarter (23%) also do not believe they have instances of neurodiversity among employees (such as ADHD or autism spectrum disorders).

Of these areas, many suspect they may have incidents
of them but currently have no evidence:

Are employers as prepared as they think they are?

The majority of employers believe they are well-equipped to deal with the challenges presented to their business, particularly those associated with an ageing workforce and increasing impacts of mental health. However, the current lack of awareness and of comprehensive data monitoring and measurement could indicate otherwise – or at least doesn’t show us the full picture. The reality is, to be fully prepared, businesses need to know what they’re dealing with. But if sufficient data collection and analysis is not carried out, how can a business truly know the pressures they face?

All the challenges highlighted emphasise the absolute need for wider measurement and sufficient data collection to be able to properly implement effective changes. However, our data raises some concerns. While some businesses are monitoring 
for certain conditions, it is not the majority. Less than half are actually monitoring for most conditions: 

46%

monitor for stress related disorders

There are two key considerations here for businesses. The first is around clarity of the costs associated with building a benefits package that supports both ends of the employee spectrum. The second is ensuring all employees feel their needs are being considered. For healthcare benefits in particular, the risk being this could result in a costly two-tier system. Managed effectively, provision of differing levels of benefits could help to control costs, but it's vital to understand each age groups’ unique needs to ensure equality of such benefits.

In conclusion, most businesses believe they are prepared. However, the lack of data collection and monitoring surrounding both mental health issues and implications of an ageing workforce means they could be stumbling around in the dark. So, what needs to change? 

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When compared below, the two graphs visibly demonstrate the squeeze facing employers:

Important points to consider

Long-term sickness

40%

30%

20%

10%

0%

18-24

25-34

35-44

45-54

55-68

69-79

80+

Mental health issues among employees

60%

40%

20%

0%

18-24

25-34

35-44

45-54

55-68

69-79

80+

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cognitive conditions icon

Cognitive conditions

10%

learning difficulty icon

Learning difficulties

11%

Neurodiversity icon

Neurodiversity

15%

Social isolation icon

Social
isolation

23%

Stress related icon

Stress related disorders

14%

depression icon

Depression

16%

Anxiety icon

Anxiety

16%

How prepared do employers think they are?

Prepared

Not Prepared

A globally distributed workforce

60%

8%

Ageing workforce

73%

9%

Mental health challenges

73%

11%

Climate risk

56%

15%

Long-term sickness

70%

7%

Geopolitical unrest

55%

13%

Rise of artificial intelligence (AI)

67%

10%

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The lack of data means it’s hard to be able to tailor solutions, build support structures and relevant benefits that align with workforce needs.

This is reflected in the data on measures currently being implemented by employers:

MENTAL HEALTH

Top three measures for mental health

39%

34%

32%

mental health support programmes

phased return to work

greater flexibility in working hours

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What can businesses do?

Data collection and analysis

Data collection and analysis is the key to unlocking vital insights and understanding the exact needs of each individual business. These being what employees need and what will minimise the impact of associated issues. Ultimately, this can be thought
of as understanding each company’s ‘DNA’. Businesses have unique DNA which – when correctly critiqued – can provide the information and intelligence needed 
for them to evolve and thrive.

This is why at Barnett Waddingham, we have built our Employer DNA proposition to play a vital role in helping businesses understand and address the changing needs of their workforces. Through structured and comprehensive data analysis, as a tool, it can be used to take a deep dive into the needs of a business. This subsequently allows them to shape employee value propositions (EVPs) and wellbeing strategies accordingly. It also helps to identify challenges and mitigate risks, such as those related to mental health and an ageing workforce.

Our research makes it clear there is an overwhelming need for data-led approaches such as this to address the challenges in the current climate. 

            While some business leaders agree their mental health support services are adequately utilised by younger employees (69%), a further three-quarters (73%) believe there is an increasing need for training for managers to better support their teams.

Data, and Employer DNA, are important pieces of the puzzle in being able to better focus these solutions, but there are also other elements to consider.

Business leaders also believe more support from the Government is required. Employers have called for changes to corporation tax to encourage higher investment in employee health and wellbeing (20%), increased Government support, grants or schemes to support employees (21%) and most significantly – an increased Government focus on fixing the healthcare system, such as reducing NHS waiting lists (22%). But these are things largely out of the hands of businesses, so the immediate focus should be on what they can do.

From recognition to resolution

It’s clear employers are facing a major squeeze, primarily caused by increasing mental health issues among younger employees, bookended by the rising impact of an ageing workforce. 

With both these elements seemingly continuing on an upward trajectory, employers are becoming more and more pinched – causing a demographic crunch. While many contributing macro factors are largely out of an employer’s control, it is evident there are steps businesses can take to ensure they are best prepared to deal with the problem. Our data shows employers are trying to make changes, but with the absence of proper monitoring and data gathering, decisions are more likely to be papering over the cracks.

40%

are looking to strengthen mental health support programmes

Propositions like BW’s Employer DNA are a prime example of how change can be effectively achieved. Employer DNA combines actuarial science with leading consultancy expertise to provide real-world insights for organisations by applying proven analytical methodologies that strike a balance between technology and human intelligence.

This allows a business to design a unique EVP, properly tailored to the requirements of a business. This then allows a business to put the needs of their employees at the heart of the proposition. Having a proposition built around understanding an organisation’s DNA boosts employees’ workplace satisfaction and makes a business a more attractive place to work. All of this helps to address the skills gap and recruitment challenges and can also reduce the instances of absenteeism caused by long-term sickness and mental health conditions. This will in turn lower risk, boost productivity and remove significant cost implication. Ultimately this can then be positively reflected in the bottom line. It is not an easy balancing act – but it is one that is achievable with the right strategic tools in place.

If you would like to discuss any of the issues covered in this article or about how we may be able to help your organisation, please contact Julia Turney.

CONTACT JULIA

Solving the Employee Equation

Our data-led article uncovers why a business’s unique ‘DNA’ is the key to unlocking sustainable employee retention and development while maximising return on investment.

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