Schemes adopt flexible retirement to engage members

Schemes which have worked with their employers to offer flexible retirement have improved their relationships with employer and employee alike.

Retailer B&Q has secured a series of awards for employee engagement since removing its default retirement age 15 years ago, and allowing members as old as 96 to draw their pension while remaining in employment.

Other employers have followed suit in allowing members to draw their pension, or part of their pension, early – or to set up an alternative provision – in order to help staff supplement their retirement income.

But schemes have been urged to improve their communication around members' decision to pursue flexible retirement.

The experiences of the earliest pilot schemes have demonstrated the need for clear communication and assistance to members making this choice.

Reaching maturity

According to a survey by benefits consultancy Wealth of Work, canvassing 80 scheme professionals from a variety of employers, 70% of schemes have or intend to implement flexible retirement for their members.

“The option to continue in work will help those who wish to continue saving for retirement beyond traditional retirement age," said the report, "which is likely to be out of necessity for some.”

Of the 70% opting for flexible retirement, 21% intend to introduce it, and 49% already offer it to members.

Wealth at Work director Jonathan Watts-Lay said scheme members had two key motivations to take flexible retirement – affordability and lifestyle choice.

And the abolition of the default retirement age, effective from October 1, 2011, has created a “real change in dynamic” for employers, he said, who are now being forced to consider the question of flexible retirement.

But while the vast majority of schemes will soon provide flexible retirement, half of respondents to the survey said they had no plans to financially educate members when they are about to leave work.

Watts-Lay said: “On one hand, they will tell an employee for 30-40 years they need to save for a pension, and they will send out their pension brochure, and they will give them help on the induction course.

“Then at the point when they need to make some major decisions about it, they could be abandoned. For me that is just absolutely crazy.”

There are a few options for retirement pension provision being put in place by schemes. The first is for employees to carry on working part time, but to draw their pension.

Another is for employees to take their pension at the scheme’s retirement date, but carry on working and put their contributions into a personal provision, or, from 2012, into the National Employment Savings Trust.

Learning from experience

A 2006 Department for Work and Pensions report featured some of the FTSE frontrunners in flexible retirement, including B&Q, HSBC, and Marks & Spencer (M&S).

The latter's Flexible Retirement Policy, launched in the same year, took advantage of legislative changes which allowed employees to continue working beyond the normal retirement age. All M&S workers beyond 50 are allowed to draw their pension while continuing in work.

The policy was developed by the company in consultation with the pension and insurance departments and occupational health, among other teams, before it was signed off by trustees.

M&S also benchmarked its policy against other examples of good practice among competitors, aided by industry groups including the Confederation of British Industry.

The company reported a key problem among scheme members in differentiating between the pension age and retirement age, and took the following actions as a result:

1. Amended the style and tone of the literature to ensure its accessibility;

2. Introduced a dedicated pensions helpline;

3. Published a newsletter directing employees to the helpline.