The information contained within the following news articles have been pre published. The articles were published on the dates indicated and the information contained within these issues include references to taxation, legislation, regulation and other issues or concerns that may no longer apply
Age Discrimination and YOUR Pension
Pension schemes are covered by the Equality Act 2010 which basically makes it unlawful to discriminate against employees because of their age. The law covers all types and all aspects of occupational pension schemes and applies to active members, deferred members and pensioners. Personal and stakeholder pension schemes are affected but only by reference to the employer contributions made on behalf of employees. The law does not cover the state pension, National Insurance rebates into contracted out schemes, pension sharing on divorce or annuities purchased from insurance companies.
From 1 October 2011, employers are no longer able to force employees to retire at any age unless the retirement can be objectively justified. The previous Regulations allowed employers to set a default retirement age (DRA) which allowed them to force employees to stop working at age 65 or higher. Now that the DRA has disappeared and more people work past age 65, employers will have to decide what pension scheme benefits they want/have to provide for those working on.
Pension Scheme Retirement Ages
A default retirement age at which employers could force their employees to stop working is different from a ‘normal retirement age’ in a pension scheme which is the age at which employers expect the majority of their workforce to retire.
It has been stated that the removal of the DRA does not affect occupational pension schemes. The absence of a DRA does not affect the setting of a ‘normal retirement age’ or ‘normal pension age’ for the purposes of occupational pension schemes. However, employers will have to consider allowing continued accrual of benefits past the normal retirement age.
In addition, for group personal pensions and stakeholder schemes, an employer probably has to contribute to such schemes for as long as the employee works for them.
Insured Benefits (Non-Pensions)
The Government did take account of submissions to consultation regarding insured benefits (income protection, life assurance, sickness insurance, accident insurance, private medical cover) where it’s been argued that if no age restriction was to apply to these benefits, the cost of cover for employers would rise considerably. In such cases, employers might cease to offer such benefits to all staff regardless of age. Because of this, the government has introduced an exception to the principle of equal treatment on the grounds of age for group risk insured benefits provided by employers. This means that employers can still apply age restrictions to such schemes.
Unless there is a specific exemption under the law, age discrimination will only be lawful if it can be objectively justified.
Three important exemptions for money purchase schemes (occupational and personal and stakeholder) are as follows:
• Age-related contributions are allowable – provided the aim is to yield equal emerging benefits or to make ‘more nearly equal’ the benefit.
• Earnings-related contributions are allowable – despite any inequality which might arise due to the fact that older workers tend to earn more.
• Equal rates of contributions to money purchase schemes, irrespective of age, are allowable despite any inequality in the emerging benefits.
Some employers will currently have more than one pension scheme in place for (some of) its employees and automatic enrolment will probably lead to many additional employers having different schemes for different sections of their workforce. The employer will need to be mindful of both direct and indirect age discrimination and, as long as the legislation is not breached, there is no requirement to put all staff into the same scheme.
What do I think?
This is a very complex area and employers and trustees should be fully aware of the age equality legislation and the objectively justified rules and the exemptions that apply.
Advisers here at Census Financial Planning can provide very important guidance for employers and trustees by checking that existing schemes satisfy the law and by recommending appropriate structures for new schemes that are fully compliant as well as meeting the needs of the employer and its workforce.
Chartered Financial Planner