Age Discrimination - Important concessions for pension schemes
The Government has just published yet another consultation document on pensions.† I know what youíre thinking, but please keep reading Ė itís important.
Youíll know Iíve been going on about the threats to our pensions from age-discrimination ever since the European Employment Directive got the go ahead in 2000.† Basically weíve got to incorporate its provisions into our legislation here in the UK by the end of next year at the latest, and preferably by the 1st of October 2006 if we can.† The UK Government has decided to go for the 1st October date and has just published these draft Regulations (the Employment Equality (Age) Regulations 2006, no less) for us all to consult on.† The good news is that we have decided to make extensive use of the opt-outs available to Member States so that we can carry on without having to make too many changes to our occupational pension schemes.† Thatís good, but there is a bit of a worry there that the UK Government may have pushed things a bit far and may one day be forced into some u-turns.† However, if these Regulations go through as drafted here I think it will be good news all round pension-wise and most of our previous worries about silly changes being imposed on schemes will turn out to have been unfounded.
There are many exemptions made for pension schemes, but there is also one headline-grabbing bombshell in all this too.† I think so anyway.† After 1st October next year retirement ages below age 65 will be banned.† There is room for manoeuvre though if employers can justify an earlier retirement age.† Youíll probably read all about that in the Sunday papers.† Implementing this little change will clearly cause many employers and trustees to rethink what their schemes are all about if they are currently running with lower retirement ages.† Employers will also be required to consider any requests made by employees wishing to work beyond their retirement age.
There are big issues there, but itís the exemptions I want to concentrate on in this BeeLine.† Iíll list the main ones here with some comments:
- It will still be possible to operate minimum service and pay levels for admission purposes.
- Actuarial factors will be able to differ with age.† That means things like early retirement factors and transfer values and such like will be able to work sensibly.† If the Government hadnít gone for this then weíd have had some silly stuff going on.† A good example of silliness would have been, say, two people joining a scheme on the same day and doing the same job and earning the same money and then both leaving on the same day and requesting transfer values.† If everything about them were the same except their age, say one joined at twenty and one joined at forty, then the transfer values offered from a final-salary scheme might have needed to be the same too if a purist approach were to be taken to the question of ageism.† In practice, of course, the older guy should get a higher transfer value to reflect the differing value of the underlying benefits.† This is all avoided by the approach the Government is proposing here.
- It will be possible to have minimum or maximum ages for admission to a pension scheme.
- Employers will be able to make different levels of contribution for employees on the basis of their age.† This is probably the issue that most people feared would upset so many schemes and itís encouraging I think to see the Government guys getting this one right.
- Along the same lines, really, employers will also be able to make the same level for employees irrespective of their age.† If you think about it that could have been construed as ageist, but would have made operating schemes nigh on impossible.
- Employers will also be able to make different levels of contribution for employees based on the length of their pensionable service, the level of their earnings or even their seniority within the company.
- Equally, it will remain possible for employers to provide different benefits to employees based on length of service, seniority and level of remuneration too.
- Employers will also be allowed to close schemes to new entrants or even offer different schemes to different employees based on age or earnings levels.
These are the main points I guess, but we wonít know if itíll all go through intact until the consultation is done and dusted.† The consultation period ends on 17th October 2005, so I suppose weíll know for sure some time before the end of the year, but this draft gives us a good idea I think of what weíre likely to end up with.
Now, all of the above points relate to our occupational pension schemes in the UK, but we also have personal pensions here too.† Strictly speaking the ageism stuff doesnít really apply to personal pensions or stakeholder pensions, but where employers pay into them they will have to justify using age criteria.† This is particularly important as far as groupings of personal pensions (GPPs) are concerned.† What the Government says here is that employers will need to show that their policies for making contributions are Ďa proportionate means of achieving a legitimate aimí.† That might mean things like rewarding loyalty, or only paying in to a pension if someone has a reasonable period to go to retirement, or things like that.† Itís not really covered in the document, but one of the things Iíll be pressing for will be some kind of statement saying that all of the things that are reasonable and proportionate for money-purchase occupational schemes should be deemed to be so for GPPs too.
Obviously there is more to this ageist stuff than just the pension issues and if youíd like to get hold of a copy of the full Monty on it all you can download a copy of the consultation document by clicking on the link Iíve put in at the end here.† Make sure your tonerís topped-up though.† Itís 106 pages long!
21 July 2005
This is based on our understanding of The Employment Equality (Age) Regulations 2006.