Feature – Flexible retirement plans

In summary
Not all employees are young whippersnappers; there is a growing population of older workers who need to be looked after. Organisations are coming up with clever ways to recruit and retain these employees. We look at how pension benefits, along with other life benefits, are affected by our changing workforce.
Case study- Whitbread.

Article in full
In retirement, it can be easy to lose your mind. Or at least feel as if you are heading that way. So returning to work can be an attractive prospect for individuals who want to remain active and expand their social network. And this appears to be what employees are looking for. Some 73% of respondents to research carried out by leisure company Whitbread and market research company TNS in July this year said that they would return to work after retiring in order to stimulate their mind.

While many employees harbour blissful dreams of retirement, the reality for some is somewhat different. The endless free time can soon become dull and repetitive once the novelty has worn off.

Even the timing of when staff retire can often fail to live up to expectations – early retirement is now no longer an option for many individuals. Rapidly dwindling retirement funds, for example, have meant that employees find themselves having to work for longer in order to fund their everyday existence, let alone any longed-for extras.
These individuals will have quite different needs to their colleagues who have chosen to return to work. But whatever their motivation, employees at the more mature end of the workforce have a valuable wealth of knowledge and experience. And employers appear to have recognised it. Industry figures from the Department of Work and PensionsÂ’ Age Positive team show that, during the last seven years, the employment rate for older people has increased faster than for those of the dataÂ’s defined working age (25- to 49-year-olds). So, how can employers ensure that they attract talented golden oldies?

Phil Murray, total reward consultant at consultancy firm Hewitt Bacon & Woodrow, explains that employers can predict what is likely to appeal. “We can make some well-informed conjectures about what they are looking for. ItÂ’s quite different than for more traditional employee groups.”

According to WhitbreadÂ’s research, 57% said that financial reasons would prompt them to stay on at work. Employees typically fall into two groups: those who cannot yet afford to retire and those whose income is primarily disposable because they want, rather than need, to work. “ItÂ’s very difficult to class [benefits] according to age, itÂ’s much more about lifestyle,” explains John Dean, managing director of Gissings Advisory Services.
Typically, however, employees that are building up to retirement will be looking to accumulate as large a retirement pot as possible. “If you have 10 years to go to retirement, you are not going to want to draw your pension but instead top it up as much as you can,” adds Dean.

Organisations that allow staff to make additional voluntary contributions (AVCs) or significant one-off contributions to top up their pension, therefore, are likely to appear favourable to candidates. And competitive employer contributions to a scheme will always win a company votes. Staff that have a defined contribution (DC) pension, however, may find that economic conditions, such as the current state of the stock markets, affect when they can retire. “There may be some volatility challenges that affect the employeeÂ’s ability to retire,” explains HewittÂ’s Murray.

This means that employees can expect to receive a much higher pension during prosperous times. But employers need not worry that they will lose all staff of a certain age as soon as the economy starts to boom. Introducing a hybrid pension scheme or lifestyle investment options can reduce the risks involved for both parties.

While staff may be aware of the need to plan ahead, many may not know where to start. Providing employees with access to financial advice or education will help them to tailor their retirement plans to suit their circumstances. “[Employers are] recognising that employees may not have saved enough for retirement or, even if they have, then [they are] recognising their lifestyle change. ThereÂ’s quite a trend at the moment for organisations to run pre-retirement courses for those aged 50 and above,” says Claire Davies-Evans, director of IFA firm Clarity.

As they age, workers will also begin to confront the prospect of their own mortality. While employers may well question the continued health of their workforce, staff will be looking to provide for themselves and their families should their health deteriorate. A good healthcare package can go a long way towards helping them to do so. Some of the more traditional benefits such as income protection and life insurance, however, are likely to be discarded. HewittÂ’s Murray explains: “Death is something that happens. ItÂ’s not something you insure against as you would in younger or middle age.”

GissingsÂ’ Dean, however, warns against using age as the sole criteria for setting benefits. SocietyÂ’s increased acceptance of divorce and re-marriage, for example, means that older employees are now just as likely to have a young family as their younger colleagues. In these cases, benefits such as life insurance cover, will be hailed as important as ever.
Other valued options will include private medical insurance (PMI) and critical illness cover. But for older employees, these come at a price. Dean adds: “As you get older, things fall off so an insurerÂ’s costs will rise with age. From that point of view, healthcare benefits will cost more.”

Offering these benefits through a flexible scheme enables an organisation to retain its caring image while passing on at least some of the cost to staff. And because purchasing these benefits through an employer is more cost-effective than doing so on an individual basis, it will still be appreciated by staff. “Under flex, we see a lot more of the older workers choosing [options] such as protection benefits,” says Dean.

Not all benefits will increase in price when aimed at an older workforce. Offering discounted products or services through a voluntary benefits scheme, for example, is likely to be an attractive option. After all, everybody always loves a bargain. “[Older employees] are working almost exclusively to repair a shortfall of income and they are very interested in the cost-effectiveness of what they earn. So anything an organisation can do to help this go further is likely to be welcomed,” says HewittÂ’s Murray.

Once staff have begun to consider their mortality, many will make a conscious effort to make the most of their life. Even employees that have no desire to give up work in the near future will be only too aware that they have spent most of their lives in employment. Flexible working arrangements can help them to redress the balance. While policies such as part-time working or job-sharing can help staff to achieve a good work-life balance, arrangements that are tailored to suit employeesÂ’ lifestyles and interests will undoubtedly appeal.

Asda and Whitbread, for example, offer older employees the opportunity to take ‘winter sunÂ’ leave (they call it ‘BenidormÂ’ leave) in order to travel to warmer climes during winter months. While grandparentsÂ’ leave means that staff can help out with childcare responsibilities and attend landmark events such as a grandchildÂ’s first day at school. Jon Whiteley, head of diversity at business psychologists Pearn Kandola, says: “Those sorts of policies are starting to differentiate the better employers.”

This just goes to show that a little creativity can go a long way. Whiteley explains that considering employeesÂ’ lifestyles can help employers to devise an attractive benefits package, and it could be the little things that make all the difference. “Grandparents who have caring responsibilities could still go to work if their workplace had a crèche. ThatÂ’s quite a popular attraction.”

With many more traditional talent pools likely to have been exhausted in the not too distant future, Whiteley believes that thinking outside of the box will place employers ahead of the game. “Those organisations at the vanguard of this area have really cornered the market in terms of creative policy.”

Case study
believes that offering flexibility and choice is key when devising a benefits package for older workers.

The leisure business, which includes brands such as Costa Coffee, TGI FridayÂ’s and Pizza Hut, offers staff a range of voluntary benefits to suit all lifestyles. Aly Shariff, reward and employment policy director, explains that many of its older employees have returned to work out of choice and so have a greater disposable income than their younger colleagues.
Discounted legal services such as will-writing, holidays and gym membership are particularly popular. “These are things that they would spend money on outside. They are a little bit older, returning to work and have a bit more disposable income,” he says.

The organisation extends this flexibility to its working arrangements. Its grandparentsÂ’ leave policy, for example, ensures that older workers can share childcare responsibilities and can take time off for important events. “The kind of culture weÂ’re trying to foster is that you wouldnÂ’t want to come into work and struggle to organise time off to go to your grandchildÂ’s school play,” explains Shariff.

One of the companyÂ’s brands has also introduced winter sun leave for staff who wish to take a longer break during the post-festive seasonÂ’s January lull.

Shariff adds that the company has experienced clear advantages from employing older workers. “It brings a new level of maturity and understanding to the organisation that you donÂ’t get from anywhere else. Having a good mix of employee types is essential to any business. By matching and empathising [employee and customer demographics] you are building a better understanding between customers and staff.”

Age discrimination legislation
From 2006, employees who believe they have experienced age discrimination in the workplace will have grounds for legal action. So organisations that offer age-related benefits could be at risk. Elizabeth Slattery, employment partner at law firm Lovells, explains: “You should stop and closely examine anything where there is an age qualification. Employers will have to be careful that the benefits they offer donÂ’t have an indirectly discriminatory effect.”
It was initially thought that the legislation would include benefits related to length of service. Slattery explains, however, that the latest consultation documents now enable employers to continue to offer service-related perks.
Employers that fail to comply with the age laws may find themselves open to unlimited compensation claims. Unlike claims for unfair dismissal, those for discrimination have no upper limit.