Levelling-Down and Ageism
In just a few weeks’ time, on the 1st of October 2006, the Employment Equality (Age) Regulations 2006 are due to take effect. These are the so-called ageism rules from Europe that are set to turn our notion of age on its head. Ageist practices will no longer be allowed in the workplace and these changes will clearly impact on the age-structured configuration of our pension schemes.
In the UK, unlike the rest of Europe, pension schemes are widespread with nearly half the working population having a private pension1. Occupational pension schemes vary in type in the UK with the most popular being final-salary (or defined benefit), but with money-purchase (or defined contribution) schemes becoming more widespread. Not all money-purchase employer-sponsored schemes are occupational schemes though; many newer money-purchase workplace schemes are constructed by grouping individual Personal Pension plans (GPP) or Stakeholder Pension plans (GSHP).
We are told that following the recent upheavals on A-Day (the 6th of April 2006) we have only one pension tax regime rather than the eight we had previously, but although that was the intention it is not really the case. The nature of the contract between individuals and their employer is very different depending on the type of pension benefit being provided (final-salary or money-purchase) and nature of the underlying pension contract (occupational scheme or a grouping of individual arrangements). Our not having just one universal set of pension rules and therefore just one tax regime will, I think, lead to many bewildering anomalies as we slowly get to grips with the ageism stuff after October. You may have read in the weekend papers, for example, that it may be OK for an employer to impose a minimum entry age of 25, say, for an occupational scheme, but not OK to do that for a GPP 2. Similarly pension lawyers appear to be divided on whether it will be possible for employees working on beyond their scheme retirement age to insist on receiving their company pension while they remain employed by the employer. It’ll be more things like that that I’d expect will gradually crawl out of the woodwork.
That’s all because the Government took a bit of a punt on what would and would not be classed as ageism as far as pensions are concerned when they framed the Pensions Act 2004. In effect that Act says what will construe ageist practice and what will not. But there’s no guarantee that the Government’s view on what is or isn’t ageist practice would be upheld in a future European Court judgment; we’ll really have to wait and see before we finally know how fundamental the changes to our pension system will be because of these new regulations. The regulations give people specific rights against pension scheme trustees and pension scheme managers if their actions are ageist and some trustees are changing their schemes to protect themselves from any possible future action.
There is a sound reason for acting ahead of time in such things as any judgments made in the future would almost certainly require schemes to offer parity to workers who lose out through discriminatory practices by putting them on the same terms as more advantaged employees. Levelling down the benefits of the advantaged employees probably won’t be an option at that stage; my guess is that levelling-up is going to be the next thing for trustees to worry about. We’ll hear more about all this after 1st October I’m sure; don’t forget you heard it here first…
30 August 2006
1. The Pensions Commission, Key Facts from the First Report of the Pensions Commission, October 2004
2. Department of Trade and Industry - The Impact of Age Regulations on pension schemes.
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