Retirement of Older Workers: Issues and Policies

By Agarwal, Naresh C.; DeGroote, Michael G. | Human Resource Planning, March 1998 | Go to article overview

Retirement of Older Workers: Issues and Policies


Agarwal, Naresh C., DeGroote, Michael G., Human Resource Planning


Retirement of Older Workers: Issues and Policies

Today's organizations are faced with an aging workforce. Such a workforce represents both an opportunity and a challenge to organizations. It presents an opportunity because organizations can draw upon this growing resource to achieve their goals and strategies. An aging workforce poses a challenge because its effective utilization requires development of appropriate human resource policies. Included among these are retirement policies that are the primary focus of this paper.

The present paper consists of two parts. The first part examines key substantive issues that organizations should consider in developing retirement policies for older workers. These issues are discussed with particular reference to two basic policy options: mandatory and flexible retirement. The discussion of issues draws upon established theoretical and empirical literature from a variety of fields. While the context of discussion on some of the issues is Canada, the trends noted and the arguments made are generalizable to most industrialized countries. The second part of the paper derives policy implications with respect to retirement and effective utilization of older workers.

Substantive Issues and Arguments

Individual Rights, Needs, and Preferences Most Western societies have become increasingly committed to democratic principles of equality and freedom. At the workplace, these principles imply that employment decisions affecting individuals ought to be made without any regard to their personal and demographic characteristics. Instead, such decisions should be based on work-related criteria such as bona fide occupational requirements and performance. Accordingly, it can be argued that mandatory retirement, by singling out age rather than individual productivity or competence, is contrary to the principles of equality that our society has embraced.

Mandatory retirement can cause great economic and emotional hardship to many older workers. Before introducing legislation in 1978 prohibiting forced retirement at age 65 in the United States, public hearings were held by the House of Representatives on this subject. About the same time, in Canada, the Special Senate Committee on Retirement Age Policies also deliberated on this issue. According to the evidence presented before these bodies, mandatory retirement can cause severe economic hardship on older workers having financial obligations. This is particularly true for women, who have become very integral and critical participants in the labour market. Over the period 1976 to 1995, their labour force participation rate has increased from 45.2% to 57.4%; their relative share in labour force has gone up from 37.5% to 45.1%; and they have contributed 61.6% of the total labour force growth in Canada.(1) Due to the role they play in household and family activities, many women workers tend to have discontinuous and fewer years of service. Thus, they may not qualify for full pension benefits if forced to retire at age 65.

Also, sudden shock of compulsory retirement and the resulting loss of productive work and earning power may often lead to impaired health and mental well-being. Studies have shown that voluntary retirees are more likely to be better satisfied than forced retirees (Roadburg, 1985). Flexible retirement policies enable older workers to make retirement decisions that are most consistent with their economic and non-economic needs. This may explain why a large majority of Canadians in a recent national survey indicated a strong preference for flexible retirement (Lowe, 1991). These preferences are also reflected in the widening of the age range within which people have begun retiring in recent years. For example, in the 1960s and 1970s, most people retired at or around age 65. But, retirement now occurs across an age span of 15 years or more, from the early fifties to the mid-sixties. (Schellenberg, 1996)

Demographic & Labour Market Trends

A strong case for flexible retirement policies can be made based on the emerging demographic and labour market trends in the Canadian economy.

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