Talking about consultation - hope I retire before I get old
Obviously this immediately brings to mind the way pension schemes currently work, where employers can require that their employees retire just because they’ve reached an arbitrary age like 60 or 65. This just won’t be on after the anti-ageism stuff comes in.
The thing to remember at this stage is that this is just another consultation piece. No decisions have been made yet, and none will be until after the consultation period ends on 20 October this year. I say that because the newspapers are already full of what look to me like scare stories about us all having to work an extra five years until we’re 70 before we’ll be allowed to retire. We will be putting out a detailed piece of work on the BeeHive in the next week or so, summarising these proposals from the DTI and outlining Scottish Life's and the wider Royal London Group response, but for now I’d just like to bring a bit of BeeHive style plain English clarity to some of the wilder issues that are blowing all around this stuff.
At the moment in the UK many employers impose their own mandatory retirement ages on their staff and these are usually ages 60 or 65. Retirement ages can be enforced at the moment for two reasons. Firstly because there is an age limit for bringing unfair dismissal claims; and secondly, simply because there is no legislation prohibiting age discrimination. It is this that is about to change.
Fixing a mandatory retirement age, an age at which an employer requires employees to retire and leave service, amounts to direct discrimination and is not allowed under this European Directive. It’s as simple as that. So we will have to change the way our pension schemes work to allow for it. And, as far as pensions are concerned anyway, that’s what this particular consultation is all about.
The UK now has a fixed age for eligibility to the State Pension, but this is not the same as a mandatory retirement age. The recent Green Paper and the proposals from the Inland Revenue were written in the full knowledge that this EU Directive was about to come into play and many of the provisions proposed in them were dovetailed to fit with the future European reality we are heading for. Much of it was clever stuff. We don’t talk about ‘State Retirement Ages’ any more, we talk about ‘State Pension Ages’. And it’s not just semantics either.
As far as company pension schemes are concerned the EU Directive has itself been drafted to allow for the fact that defined benefit schemes need to operate a ‘normal pension age’ so that the actuarial basis of the scheme can be managed. This is different, though, to setting a required ‘retirement age’ that forces people to stop working just because they are drawing a pension. And that is precisely why the Green Paper proposed that people should be allowed to draw a pension while continuing to work for the same employer, in the same employment. It is a little too easy sometimes to be critical of legislators, but in my opinion what we are seeing here is very ‘joined-up’ and when we see it working like this we should be the first to say so. I certainly would be the first to criticise if I thought the opposite was the case.
This European Directive has to be implemented in all EU states and will be translated differently into the legislation of each to fit with their own local approach to pensions. In most cases this will be very different to our own, because the structure of pension provision in the UK is very different from the European norm. In some countries, though, what people are proposing is that a ‘default age’ is set, at which point employers will be able to retire their employees compulsorily. Although the countries that are considering this have different pension realities to us, with the bulk of pension provision coming from the State itself, for instance, the DTI is asking in this document for our views on whether such a ‘default age’ approach could be workable here. I personally don’t think so, but I think it is valid to explore such options. In their document, the DTI have suggested this might be age 70, or even higher and they are looking for views on this too. Well, from reading today’s newspapers you could be forgiven for thinking that the Government has just announced we’ll all have to retire at 70 and that going at 65 or 60 will mean we end up with actuarially reduced pensions. That is not what is being said and, for what it’s worth I think it would be a very big step to change the benefit structures of schemes in such a way, and I don’t think anybody should seriously be worrying about that at this stage. That’s another issue that refers to the affordability of pensions and the future level of employer commitment to funding that already exists outside of this. I don’t think it helps to muddle the two things up.
One thing that does interest me, though, (and it is not covered in the consultation) is whether this new anti-ageism stuff will mean we may one day no longer be able to have laws that require people to buy annuities just because they are aged 75. That too is another issue that I don’t want to cloud the waters with here, but you can be sure you’ll hear a lot from me on this over the coming months. In the meantime, don’t get all your information on pensions from the papers. Keep calling in to the BeeHive instead. You know it makes sense.
2 July 2003
The information provided is based on Scottish Life’s understanding of current legislation and regulations and the consultation document “Equality and Diversity: Age Matters” issued on 2 July by the Department of Trade and Industry. This may change in the future.