Extending benefits to retired workers

Extending perks to retired workers may prove cost neutral or can even help slash benefits charges, says Sam Barrett

Case study: Compass Group By

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Looking after employees through every stage of their working life is little more than a pipe dream for many employers. Financial and administrative restraints mean that, for most organisations, once an employee leaves the payroll they lose their entitlement to the company’s benefit package too.

Extending benefits beyond the current workforce can be very costly and even prohibitively expensive when someone is in their seventies or older. Yet some organisations do.

Bob Perkins, technical manager at independent financial advisers (IFA) Origen Financial Services, says: "The cost of picking up the tab for a benefit such as [private] medical insurance for the rest of an employee’s life is very significant." For example, a fully comprehensive policy can cost several hundred pounds a month for someone aged 70 or above. "You might find a company continuing to pay for benefits for their key employees but definitely not for the entire workforce. Paying for former employees to receive all these benefits probably won’t be a popular move with shareholders either," adds Perkins.

The problem has been exacerbated as life expectancy has increased. According to the Government Actuary’s department, in 1906, a 65 year-old man could, on average, expect to live for a further 10 years, or 12 years if female. Today, they can expect to live for a further 16 and 19 years respectively.

With this increased life expectancy already putting pressure on pension funding, its no surprise the continuation of other benefits is not always possible. Nicholas O’Shea, director of IFA firm Pharon, says: "It’s not just a question of cost though. If you tell employees you’ll provide them with benefits indefinitely, where do you stand if these become too expensive and you have to withdraw them? You’re leaving yourself open to litigation."

But for some employers, looking after employees after they retire or leave the company is important. Amanda Poole, a spokesperson for British Airways, says: "Our retired employees still have a link to the company through the pension scheme and we believe we have a duty to look after them." Its retired employees receive a wide range of benefits including a quarterly newsletter, discounted products such as flights, car rental and healthcare, and social club membership.

A similar view is taken by John Lewis. It has set up a special committee to look at the perks it offers retired employees. Kate Green, a registrar at the retailer, says: "We wanted to be seen as an employer of distinction in the way we treat retired workers. We aim to maintain the kind of relationship with our retired employees as exists in a family."

To do this, it provides these staff with a number of benefits such as discounts on its products and services, use of clubs and societies, and invitations to parties and outings.

Providing benefits to retired employees also sends out a positive message to people working in the organisation. So, while it’s unlikely to be a reason someone decides to work for a company it may make them think twice when they’re considering moving on.

Although offering an extensive range of benefits can be costly, for example, in 2004 John Lewis spent around 900,000 on providing benefits to retired employees there are ways to appear generous without having to dip too deep into the financial coffers.

Providing staff with a benefit that is produced by the company can keep costs down. British Airways offers its retired employees a discount of 90% on the full fare for standby flights or around a 10% discount on confirmed reservations. Likewise, Compass Group offers discounts when retired staff use its hotels or book its trips.

This approach is also taken by Standard Life Healthcare, which offers all former employees discounted medical insurance. Mandy Blanks, a spokesperson for Standard Life Healthcare, explains: "When our staff retire or leave the company they are able to continue with a policy with a no claims discount that reflects the length of time they have been with the firm and the number of claims they have had. Additionally, they’ll keep the same underwriting terms so any pre-existing conditions wont be taken into account."

Even organisations that don’t have their own products to offer former employees can still provide benefits at a relatively small cost. "Offering voluntary benefits through affinity schemes is a popular way to extend benefits to former employees," says Perkins. Indeed, the larger the customer base means the larger the discount, so including former employees in a scheme makes financial sense.

With some products it’s relatively easy to offer staff a continuation option at no expense to an organisation, whether they’re retiring or leaving for another employer.

Healthcare providers, for instance, are keen to court any group leavers with preferential terms. "We offer continuation terms to anyone leaving one of our corporate schemes, irrespective of how many claims they’ve made. They’d receive a no-claims discount on the new policy based on their claims history and the new policy they selected," says Blanks.

Another popular and highly-valued benefit for retired employees involves social and leisure activities. Former IBM employees who receive a pension from the company are automatically entitled to membership of the IBM Hursley Club, the firms sports and social club. This lays on a variety of events from casinos and clay pigeon shooting through to hill walking and folk dancing.

Former employees of John Lewis and British Airways are also catered for with social activities. "We have some clubs specifically for our retired employees but they’re also able to join the clubs that are open to existing employees too," says BAs Poole.

But while extending benefits of any kind to former employees is relatively unusual this could be about to change. Although an ageing population has made it unsustainable for many organisations to provide benefits to their former employees, perversely this may also prompt more employers to consider reintroducing these benefits. Tony Conn, marketing manager for Buck Consultants, says: "We’re moving towards more flexible retirement. Providing benefits post retirement helps to remove the cliff edge and help people adjust to full time retirement."

In addition, as the population ages, the older members will make up a much larger proportion of the workforce so employers may need to look to their retired staff when it comes to recruitment. By maintaining a relationship with them through these types of benefits, convincing them to come back to an organisation, rather than work for competitors, is likely to be much easier.

Case Study: Compass Group

Foodservice giant Compass Group is a firm believer in looking after its employees, both past and present.

Lesley Potter, communications director at Compass Group, says: "Anyone who’s worked for us will have supported us so we believe its important to support [retirees]."

In addition to pension benefits, retired employees also enjoy many of the perks that were available to them when they worked for the company. Among these are the range of voluntary benefits, which include discounts on a variety of different products from the groups own services through to insurance. Additionally, depending on where group they had worked, retired employees also receive £25 of Christmas vouchers.

All retired employees receive a quarterly newsletter written specifically for former employees as well as the company’s normal newsletter.

They can also take advantage of heavily-discounted lunches and trips for themselves and their partners. "We employ three part-time advisers who look after the volunteers who keep in touch with any retired employees who want this type of contact. These volunteers are usually newly-retired and it helps to create a good support system."

Compass Group also works with the benevolent organisation for the hospitality industry, Hospitality Action, and will flag up any cases where former employees are struggling. "Looking after our former employees is important. Many of our former employees will have sons, daughters or grandchildren working here. This makes it even more important that we look after them," adds Potter.