From Bismarck’s Pension Trap to the New Silver Workers of Tomorrow: Reflections on the German Pension Problem

3. Larger Workforce and Pension Considerations

The change of the workplace is the result of the spatial flexibility through information and communication technologies where greater liberty when choosing the workplace becomes possible. This allows not only an increase in quality of life as there is a new degree of freedom in determining the environment where the productive activities are carried out. It also permits to secure new employee potential as people who have difficulties in travelling to their work places like the elderly can more easily integrate their capacities into a work flow. We need to tap more aggressively into these possibilities if we are to design an efficient economy with a sustainable pension system.
Nevertheless, there are limits to how far the virtualisation of the work place can go as companies are also social units. Much of what is called ‘esprit de corps’, which then creates a corporate identity, only comes through physical interaction — and lots of it. Companies are also a nurturing ground for employees who can test and verify their skills, profit from each other in many more fields than just the work at hand with spin-off knowledge than can later help tackle other problems. The idea of establishing incubators for young start-ups relies heavily on this mechanism. In an ageing society with a larger share of elderly persons, harnessing this knowledge to be in closer contact with potential customers is important. There will be a stronger trend to integrate more people beyond the traditional retirement age into the production process as their share in the general population goes up.
There are naturally close relationships between the development of the demographic composition, the work environment, the expectations of the workforce, and the possibilities of companies to generate the right and most efficient process to tap into the human capital available to them. The parameters offered by an ageing workforce are distinct from those of a more traditional composition. The population forecasts for developed countries predict a tendency to shrink in most of them. Fertility rates of 2.1, the amount needed for a stationary population will not be reached in most OECD countries in the coming decades. As a consequence the expected labour force replacement rates in those countries will be negative despite the efforts to raise participation rates — especially those of women and the elderly. On the other hand, developing countries are still growing at a very high speed and although there have been (and doubtless will be in the future as well) a series of constraining measures implemented to retain population growth, the overall tendency is clear.
The result of this asymmetric development is a disequilibrium between regions that will lead to strong migration pressures. This is especially true if we take into consideration that generally the shrinking societies are more affluent than the growing ones, creating an additional incentive for migration. Unfortunately, most of the economies are rather ill-equipped to handle this situation (brain-drain problems for the one, integration issues for the other etc.). This is true not only in view of one of the direct consequences, the possible augmentation of protectionist tendencies and the implementation of restrictive measures to counter the pressure of migration, but also with regards to capital flows. It is not certain as to whether the combination of increased migration and the current shift away from pay-as-you-go systems to capital funding will lead to more or less stress on international financial markets. Probably the second is closer to the truth. Already today for some developing countries with a high incidence of émigrés, the foreign remittances are an important element of their financial planning10. Add to that the possible problems caused by (currently) rich countries with an ever increasing number of retirees trying to live off their savings — which are and will have to be invested to an important degree in the younger economies and then taken out of there for consumption purposes.

4. Trying to Better Understand the Problems of the “New Silver Workers”

Based on our earlier work11, The Geneva Association has begun a new research project together with the Department of Business Psychology at the University of Lüneburg in Germany under the guidance of Prof. Dr. Jürgen Deller and myself. We start from the general view, as described above, that in the course of demographic change, the entire population’s proportion of older people is progressively increasing with massive impact on our working environment12. During the last few years, a large number of older employees has retired from the German labour market years before reaching the statutory retirement age. From this perspective, competencies, knowledge, skills, abilities and the in-house experience with the specific demands of this age group are generally not available in companies.
Employees above age 60, we propose to call them silver workers, have very specific work competencies and motivation resulting in their performance. This specific situation is not addressed flexibly enough by current Human Resources (HR) policies. Given the current economic and definite demographic situation, continuing early retirement will not be affordable. Therefore, companies have to consider HR conditions to optimally use competencies of those who today are widely retired from the labour market. It is the target of the proposed study to identify such necessary conditions from the perspective of those staff members affected by early retirement.
There are no empirical results concerning individual valuable activities of silver workers, their motivation, or on the corporate side HR processes to integrate these activities into corporate structures. Following the explanations by the Club of Rome and The Geneva Association (Working Beyond 60)13, this study intends to deliver a first empirical basis of such activities and motivations by displaying case studies.
On the basis of a mainly qualitative data collection, the study will show which activities former employees and managers of companies carry out. By means of the identified examples, the current working conditions of these older people will be presented. Moreover, it will be assessed, which corporate HR frameworks are suitable from the participants’ subjective perspective to meet the interviewees’ demands and to motivate them to offer their competencies to companies. It is expected that from these results, and by further developing the currently prevailing patterns, innovative and flexible HR models can be derived. This will facilitate the discussions as to what extent a redesigned pension system could rely on greater workforce participation of the elderly.
The target group of the study are people at the age of 60 and older (‘silver workers’) who have retired officially from their former position to become pensioners. The study is interested in a sample of people who despite being retired still contribute their competencies in one or another way to society being economically active. These people share the experience of having made a mayor change in their conditions of work.
It is suspected that many of these people had been looking forward to retirement at age 55 to 65. However, the assumption is that upon retirement, they often realise how much they lose of their life content and satisfaction. They look for alternative options to work or come back to work. By using a convenience sample in this first step approaching the topic, it is the aim of our project to develop case studies on people who are working during retirement. The question to consider here is if they work, what do they do and what does motivate them?
Questions we intend to examine in this research project are:
• What types of work activities do these people chose?
• Do they use the same professional competencies as before retirement?
• What aspects of work are most seductive for them?
• What changes occur regarding the HR policy instruments, e.g., remuneration, benefits, etc.
Regarding HR services and policies the following aspects are of concern:
• Do companies offer special HR policy instruments or services for older employees? Example: specific services for older employees, equivalent to childcare services for young families.
• What aspects need to be considered in connection with age, e.g., physiological decrease, but still able to perform at a high level in certain areas using the formerly acquired expertise.
The results will allow us to gain a better understanding as to how the pension systems could be developed further to accommodate tomorrow’s challenges. Bismarck’s pension trap has one obvious way out: prolonging the active part of our life-cycle. It is however far from clear as to how this should be done and whether the simplistic approach of just increasing the retirement age by two (and later probably more) years is the solution. In my last contribution to the European Papers on the New Welfare (issue No. 1, May 2005), there is a summary of the concept of the Four Pillars approach, modelled upon a system of partial retirement and partial work. This system offers a transitional period between full-time employment and full retirement. The worker, instead of working full-time one day and fully retiring the next, can reduce work hours according to staggered and pre-agreed schedules while drawing part-time pay (and in some cases some form of state subsidy or partial pension). This transition period could last from anywhere between five and fifteen years, de facto producing the same effect as increasing the retirement age by 21/2 to 71/2 years in a traditional full-time pension system.
There are a number of advantages for employers and workers alike. For the employer, gradual retirement or work-time reduction: reduces the wage-cost of hours worked; raises productivity per hour (productivity per hour in many work functions increases when a worker moves from full- to part-time); retains skills and expertise together with the older worker’s specific contribution; reduces absenteeism (e.g. Swedish and French firms); makes for better age management; and frees older workers for training duties. For the employee, it makes it possible to adapt work to the older workers’ changing abilities; reduces stress and increases job satisfaction; gives the older worker the opportunity to benefit from continued membership of a work team and from inclusion in the work place (e.g. Japan); and provides the older worker with free time to develop extra-occupational activities.
It is not so difficult to find a way out of Bismarck’s trap. But we need to better understand the current limitations of our pension systems and the restraints that are present when searching for possible solutions if we only work through adapting the existing parameters that define the current situation. A major break-up of the mould and more creative rethinking is needed.

10 See e.g. the discussions in Turkey as to remittances from nationals who work in Germany.
11 See e.g. Giarini, O., Liedtke, P. et al. (1997): The Employment Dilemma and the Future of Work. A report to the Club of Rome.
12 This problem is not exclusive to Germany, of course: Based on OECD projections, it can be expected that by 2030 the support ratio in a typical OECD country will decline from its current level of 3 workers to every pensioner to about 1.5. The current average income replacement rate is often nearly 70%, i.e. retirees receive on average a pension equivalent to 70% of their pre-retirement income. In order to maintain this ratio pension contributions would have to rise from less than 20% in 2000 to around 32% in 2030. It is obvious that pension contributions of over 30% would have a very disruptive effect on the development an economy. They would be hard to sustain financially as many workers would be tempted to avoid them (emigration, submerged economy etc.). Plus, an increase of this magnitude would be a major impediment to economic growth in the coming decades.
13 See Etudes et Dossiers, Working Paper Series no. 271 of June 2003 “Work Beyond 60: Preparing for the Demographic Shock”. And the recent book by The Geneva Association’s Head of the Four Pillars Research Programme, Reday-Mulvey, G. (2005) Working Beyond 60.

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