Are there challenges to face when working longer?

Published on: 18 November 2022

Topical issues in the field of economy, (responsible) investment, pension and income: every week, one of APG's experts provides a clear answer to this week's question. In this edition: Senior Pension Educator Fabian Schumans on the question what it entails for both the employer and the employee if someone wants to continue working after the state pensions’ age.

Not everyone retires when reaching the age of 67. About 200,000 Dutch people decide to work longer and that number only increases, as reported by RTL Nieuws. Doesn't that decision to work longer lead to bureaucratic hassle, and not in the least for the employer?

It's not that difficult, according to Schumans. “It is rather remarkable though that once you reach the state pensions’ age, you are no longer insured for disability to work or unemployment. That's because the assumption is made that you stop working. That is not a bad thing for an employer, because let's say a 68 years’ old employee falls ill, there is no need to start an entire reintegration procedure. And whereas a sick employee usually gets paid his or her wages for two years, that term is only 30 weeks for an employee who has already reached the state pensions’ age.” When the CAO (Collective Labor Agreement) states that dismissal will follow upon reaching the state pensions’ age, the employer has to offer a new contract to the employee who wants to continue working. “But that is mainly an administrative act and usually does not pose any difficulties.”

Yet, in practice, there aren't many employers who are eager to hire people over the age of 67, Schumans says. Whether an older employee is able to remain employed after reaching the age of 67, also depends on the way in which this is arranged in the CAO of the employer. An employer therefore doesn't always have to honor an employee's request to remain employed for a longer period of time. That can be annoying for someone who wants to continue working, for example because his or her pension is insufficient. “In that case, you can only hope that the employer is willing to retain you.”

An industry in which it often occurs that an employee chooses to postpone his or her pension, is the educational sector, Schumans has noticed. “In that industry, employees are often highly committed to their profession and their employer. And if they work in a region with a significant shortage of teachers, many teachers decide not to retire straight away but, for example, to finish the school year or to stay on for another year.” By adopting a flexible attitude, an employer can make it more attractive for employees to work for a while longer should they want to.

“If people contact me to say they may want to continue working for longer, they start thinking about what that means to them and they also regularly express the fact that working gives meaning to their lives”, says Schumans. “They are often done with work as an obligation, but if employees are given the freedom to interpret their job in their own way, I believe more people would be inclined to continue working for a while longer after reaching their state pensions’ date. You could think about the older teacher who is still willing to teach but no longer wants to be required to participate in trainings.” What often happens increasingly more often, is for older employees to start their own business. “They then become self-employed and have themselves hired by their (former) employer. That often occurs at municipal authorities, for instance. This typically involves people who run a project on an interim basis.”

Sustainably deployable
If an employee decides to work longer, there are a few things that need to be considered. “At some pension funds, the pension accrual stops after the state pensions’ age has been reached. That means an employee ends up with a higher net income, because he or she no longer has to pay pension contributions.” There are no rules attached to earning some extra money after the state pensions’ age, Schumans explains. “What I do say to someone considering this, is: Look at what you ultimately end up with on a net basis. Let's say you continue to work for your employer for a couple of hours a week, receive state pension and perhaps also pension. That means you receive money from three authorities on which very little tax has to be paid. But the Tax Authorities adds up all of those payments, meaning you end up in a higher tax bracket and you may be presented with a retrospective tax assessment. It is also important to carefully consider whether or not you want to apply the tax-free allowance and, if so, to what income.”

Although employers are not massively enthusiastic about the idea yet, Schumans can imagine that the phenomenon of working persons over the age of 67 will be increasing. “The generation now reaching the state pensions’ age, generally started working sooner than the generations following them. Working longer will therefore be less popular among this group than among the younger people who are now entering the labor market. If you started working later and you were also able to benefit from the labor conditions such as flexible working and sustainable deployability, it will be easier to continue working for a while after reaching the state pensions’ age. I already notice employers trying to keep their employees vital and to make sure they are sustainably deployable.”  

In the article of RTL Nieuws, Peter Hein van Mulligen, chief economist at the CBS, states that pensioners who continue to work will not be able to solve the shortage of labor force. Schumans also believes that the increase of the number of working people over the age of 67 will not be enough to limit the current tightness on the labor market. “That shortage is mainly caused by the ageing population and the so-called dejuvenation (decrease of the share of younger people in the population as a result of a declining birthrate, ed), resulting in less new employees entering the labor market.” Even though more people over the age of 67 are working, it continues to be a relatively marginal phenomenon, especially if you compare this with the entire labor population, according to Schumans. “These people usually don't continue to work for many years, it mainly involves shorter periods of time.” Yet, he doesn't exclude that, if employers become more enthusiastic about employees who are looking to continue working after their state pensions’ age and younger generations become more sustainably deployable, working longer could help balance the labor market more.