Case studies
BAA

Practical Step: change existing workplace practice

 Flexible Retirement
BAA is the world's leading airport company employing over 11,000 staff in the UK. Over 141 million passengers a year are served at our seven UK airports that include Heathrow, Gatwick and Stansted. The largest percentage of staff are employed in airport security, but BAA also employs firefighters and customer service staff as well as having a large corporate function.

Background:
The BAA final salary pension scheme is open to all staff and new entrants on permanent contract. It is a generous scheme and maximum entitlement can be attained after 36 years. Unlike many other UK pension schemes, the BAA scheme is in surplus, despite the employer contribution being 17% of pensionable salary.

The BAA contractual retirement age was 60 for most staff (except firefighters) and in 2004 the average retirement age was 57.8 years. The age profile of staff in 2004 showed 20% were over 50 and only 0.6% were aged over 60.

The business case
BAA decided not to wait for legislation before amending our retirement policy, as we identified a strong business case for greater flexibility sooner rather than later. The business case for flexible retirement can be summarised as follows:
  • Significantly reduce recruitment and training costs - currently estimated at £1200 pp for a new security officer
  • A reduction in inefficiencies associated with security clearance - it costs time and money to security check and clear new personnel
  • Alleviation of future recruitment problems caused by an ageing population
  • Retention of valuable skills and experience - and a greater return on our training investment
  • A possible way of addressing absence and sickness issues - currently a major concern for the business
  • Greater flexibility covering peaks in customer flow - both on a seasonal and a daily basis
  • Improved staff morale and loyalty through greater engagement - supported by new training such as mid-life planning
  • A greater diversity of ages and a wider talent pool
  • A reflection of our customer profile
  • A degree of protection for the pension fund as life expectancy continues to rise - staff will take up pension later
  • The cost of all the changes would be broadly neutral
BAA also felt that there was a strong moral argument behind the shift to flexible retirement which embodied its core values and actively demonstrated the business's commitment to equal opportunities.

Challenges
BAA researched some of the challenges and came up with four key issues - and a response:
  • There might be a perception that older workers perform less well or are poor performers - BAA believe that retirement is not a substitute for performance management and that performance management should be blind to age
  • Younger staff may regard their older colleagues as 'promotion blockers' - the business needs to take care that proper career development strategies are in place
  • Older staff in BAA may be more susceptible to illness and particularly muscular-skeletal problems - the business will be ensuring that attention is paid to the vital issues of health and safety
  • Line managers may be reluctant to embrace more flexible working patters - BAA must clearly communicate on this issue, which may help overcome a culture where there is little part-time working but lots of overtime.
Action
Following discussions both with managers and unions BAA is introducing flexible retirement in two phases. Phase one will allow the business to make policy changes that do not need to await age laws or amendments to pension scheme rules, and therefore can be introduced immediately.

Phase 1

1. Staying on
  • We increased the optional retirement age to 65 for most staff from December 2004
  • Staff have an absolute right to stay on and they can continue to accumulate pension rights up to the maximum of 36 years
2. Winding Down
  • We are encouraging staff over the age of 55 to consider part-time working as an option (anyone can request to work part time)
  • Hours are subject to mutual agreement so that business needs can be taken into account
  • Pension is based on final salary equivalent, but service is pro-rated for the time staff are working reduced hours - so one year at 20 hours per week = 6 months pensionable service
And subject to confirmation by the unions in the near future:

3. Stepping Down
  • By mutual agreement staff will be able to step down to a lower grade for up to two years before retirement
  • Pensions will be based on the best 12 months' salary over the previous three years
4. Retiring & Coming Back
  • Subject to business need staff will be able to retire, draw their pension and return to work on a new contract within three months - for security clearence reasons it cannot be longer
  • Staff can work full or part-time
  • Since this would be a new contract, the new contract is at new starter rates of pay and is non-pensionable (it is not possible to rejoin the pension scheme after 60)
5. Retiring and Returning on a seasonal register
  • Subject to business need, staff will be able to retire, draw a pension and return within three months on a seasonal register
  • Staff will be required to work a minimum number of hours agreed in advance on a non-pensionable annualised hours contract
  • In addition staff can volunteer for additional hours at short notice to cover absence and peaks in passenger numbers
Phase two will require changes in pension scheme rules, and need to wait for new Inland Revenue regulations (due in April 2006) and age laws. BAA will of course review their new scheme in the light of government regulations on age discrimination.

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