Anti-discrimination policy comes of age
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It will be unlawful for any occupational pension scheme to discriminate against members or prospective members on the grounds of age unless one of the specific exemptions applies, or the action can be objectively justified.
Pension scheme trustees will be obliged to disapply any discriminatory rules under their schemes, and will have powers to amend scheme rules that conflict with the Regulations.
Employers will not be able to retire employees below their normal retirement age (NRA), or age 65 if there is no NRA, and any NRA before age 65 will have to be objectively justified.
The Regulations also introduce a right for employees to request to work beyond retirement age and a duty for employers to consider that request.
Employers will be required to give at least six months' notice to employees of their intended retirement date.
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After a protracted process of consultation
that started in 2001, Regulations1 prohibiting age discrimination have finally been issued. The Regulations,
which implement the age equality provisions of the EU Employment Framework
Directive (Directive 2000/78/EC), take effect from
The Directive also covers race, religion,
sexual orientation and disability, and these strands have already been
incorporated into
General principles
The final Regulations contain no significant policy changes from the draft version , although they are more prescriptive in many ways. The legislation makes it unlawful to discriminate either directly or indirectly against individuals on the grounds of age in employment, vocational training and representation in professional organisations, including trade unions. The term employment covers recruitment, promotion, terms and conditions (including retirement and redundancy), pay and pensions. Harassment and victimisation on the grounds of age are prohibited by the legislation and its provisions in this area apply to all age groups.
Direct discrimination occurs when one person (A) treats another person (B) less favourably than A treats other people, because of B's age. Indirect discrimination is rather more complicated and occurs when A applies a provision to B that A applies equally to others, but that provision puts persons in B's age group at a particular disadvantage, and B suffers that disadvantage.
Unusually, compared with other anti-discrimination legislation, the Regulations provide that both direct and indirect discrimination may be lawful if it can be objectively justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary. Discriminating on the grounds of age may also be permissible for reasons of national security or if there is a genuine occupational requirement. In addition, the Regulations contain a long list of exemptions, many of which are pensions-related. These are examined later in this feature.
Pension schemes
Pensions are by their nature inherently ageist. Therefore, the Regulations deal with them in some detail. To assist the trustees and managers of schemes with their implementation of the legislation, the Department of Trade and Industry (DTI) has published guidance2 specifically on the pensions aspect. It includes details of what is and is not permissible under the age equality requirements, and explains the actions trustees should take to ensure that their schemes comply with the Regulations.
Anti-discrimination provisions
The pensions provisions of the Regulations apply to all aspects of pension schemes. This includes all types of benefit arrangements and may include stakeholder pensions that are categorised as occupational schemes. It also applies whether the schemes are registered or unregistered under the tax legislation.
There is a specific exemption for employers' contributions to personal pensions, but solicitors Hammonds points out that, in all other respects, personal pensions do come within the scope of the Regulations. However, the law firm says that the only other area that an employer can really control in respect of personal pensions (including contract-based stakeholder plans) is access, and it advises that it would be clearly discriminatory, for example, not to permit employees to join a group personal pension until they had reached a given age. It adds that the risk of this happening in practice is probably slight.
The Regulations import a non-discrimination rule into every occupational pension scheme and all scheme provisions are subject to it. It will be unlawful for schemes and employers to discriminate against members or prospective members on the basis of age, unless one of the specific exemptions applies, or it can be objectively justified. Trustees will be obliged to disapply any discriminatory rules under their schemes and will be given powers to amend any rules that conflict with the Regulations. If trustees believe that a rule is discriminatory and not covered by one of the exemptions, the guidance states that they have three options:
to objectively justify the rule;
to amend the rule; or
to remove the rule.
If a member or prospective member believes that they have been discriminated against, they must bring a claim within three months of the act complained of to an employment tribunal. Claims can be brought against either the trustees or the employer, depending on the circumstances, but the employer will be treated as a party to any claim brought against the trustees. There are a number of remedies available to the tribunal if it upholds a claim, including making a declaration of the rights of each party or an order allowing individuals to join the scheme. Complaints may also be made using the internal dispute resolution procedure and then the Pensions Ombudsman.
Exemptions
To enable pension schemes to operate effectively without breaching the Regulations, there is a long list of exemptions to the age discrimination rules applicable only to pension schemes. The main exceptions include:
setting minimum or maximum ages for admission to schemes;
imposing a minimum level of pensionable salary, as long as it is not more than the lower earnings limit (LEL) for national insurance purposes (ie a minimum pensionable salary can be set provided it is no greater than the LEL);
the use of age criteria in actuarial calculations, including on early or late retirement;
in money-purchase schemes, both age-related contributions, where the aim is to provide equal (or more equal) pensions for members of different ages, and equal contributions for all members (the latter because they may produce unequal benefits);
in defined-benefit schemes, contributions that permit members to accrue the same fraction of pensionable pay, whatever their age, or contributions that reflect the increasing cost of providing pensions the older members are;
certain age-related practices in regard to benefits, such as fixing a minimum age below which members may not receive age-related benefits;
providing bridging pensions for men;
limitations on payments to surviving partners who are much younger than the deceased member;
limiting the number of years of pensionable service (for example to 40) for the purposes of calculating benefits;
closing schemes to new members; and
applying different rates of increase to pensions in payment if the aim is to maintain the value of older pensioners' benefits compared with those of younger ones.
The impact of the legislation on the continued use of integration factors that exceed the LEL is uncertain, and this affects a significant minority of schemes. If a scheme allowed employees to join provided they earned above the LEL, but then applied an integration factor of, for example, 1.5 times the LEL, members on earnings below that factor would accrue no benefits (though they might qualify for death benefits). Hammonds believes that, although on the face of it that would not be discrimination, such an arrangement would probably be outside the scope of the exemption and therefore amount to unlawful discrimination. The law firm says it is hard to see how objective justification could be used to overcome this problem, unless the employer has never paid anyone less than the relevant integration factor.
Schemes that provide death-in-service benefits only are not covered by the exemptions. However, there is a very specific exemption for schemes that provide life cover for members who are in receipt of an ill-health early retirement pension that commenced before an unreduced early retirement pension could have done, to allow the cover to cease at normal pension age.
Applying the exemptions
The DTI's guidance contains examples of how schemes may make use of the exemptions. However, the case studies show that some of them are not as straightforward as they might seem at first glance.
For example, the age-related contribution exception may present trustees with problems. The answer to a question in the guidance concerning employers' matching contributions to a defined-contribution (DC) plan suggests that having only two different rates of employer contribution (in the example, one for under-45s and the other for older employees) may be considered discriminatory because the arrangement is unlikely to produce similar amounts of pension for people of different ages. However, the answer to another question, regarding a DC plan that increases contributions based on five different age bands, indicates that the larger the number of contribution bands, the easier it will be to demonstrate that the aim of the bands is to equalise benefits.
Another area that may present trustees with problems is that of providing enhanced early retirement pensions. It appears that trustees may not disapply actuarial reductions or provide added years of service on early retirement. However, it seems that this provision only applies in respect of people who do not acquire the right to join schemes until 1 October 2006 or later.
In addition, a case study in the guidance states that a scheme provision that offers a pension of two-thirds of final salary to all executives who have completed 20 years' service may be indirectly discriminatory as it is not covered by the exceptions, and thus would have to be objectively justified.
Retirement age
The DTI's guidance only covers the impact of the age Regulations on pension schemes. An employers' guide3 to all other aspects of the legislation has been produced by Acas. Some of the Regulations' key provisions relate to retirement age, which are explained in the Acas leaflet. This distinguishes between "retirement age", which is the age at which the employer requires employees in the same kind of position as the employee in question to retire, and "pension age", which is when employees may draw their pension, and retire if they wish.
Default retirement age
For the first time in the
This provision has not been universally welcomed, with trade unions arguing that it has been introduced for the convenience of employers. Certainly the government's justification for having a default retirement age is that it furthers a legitimate aim of social policy in that it meets employers' concerns in respect of workforce planning, and it avoids an adverse impact on the provision of occupational pensions and other work-related benefits.
The legislation also introduces the concept of "fair retirement", which is one that:
takes place on or after the employee's normal retirement age (if there is one) or the default retirement age; and
the employer has given the employee written notice of his or her intended retirement between six and 12 months in advance and told the employee about the right to request to continue working (see section below).
If the retirement is not considered fair, it could be grounds for an unfair dismissal claim against the employer. Failure to give an employee notice of retirement by the six-month deadline could lead to the employee being awarded eight weeks' pay as compensation.
A flowchart describing "fair retirement",
taken from the Acas guide, is reproduced in
Right to request to work on
A new concept introduced by the Regulations is the right of employees to request to work beyond their normal retirement age. Once the employee has been given notice of the retirement date, the legislation lays down quite a complicated procedure to be followed. (The flowchart in the Acas guide that is meant to show the procedure simply covers four pages.)
Provided the employee makes a written request to remain in work no later than three months before the intended date of retirement, the employer must respond to it. Generally, a meeting should be held with the employee to discuss the request, particularly if the employer wishes to turn it down. The employee has the right to be accompanied at the meeting.
The employer must give written details of its decision to the member after the meeting. Although the employer does not have to give reasons for declining the request, Acas suggests that it is good practice to do so. The employee has the right to appeal against the decision.
At a late stage, transitional arrangements were inserted into the Regulations to cover the situation where employees are due to retire between 1 October 2006 and 1 April 2007, as the six-month notice requirement cannot be met until the latter date. Box 2 sets out details of these transitional arrangements.
Preparing for change
Introducing the Acas
guide, Rita Donaghy, Acas
chair, said: "The frightening fact is that ... around 80% of
The Employers' Forum on Age believes that the age Regulations will have a greater impact on business than the sex discrimination laws (although its members believe that the group that will benefit the most will be employment lawyers). The CBI believes that it is the provisions on retirement age that will have the greatest impact.
There is no doubt that there will be costs to business and to pension schemes. The DTI estimates the total one-off implementation costs for employers at £291 million and for trustees at about £51 million.
Trustees' action plan
The DTI's guide recommends that trustees and employers start working together immediately to ensure that their schemes comply with the legislation. The first step is to identify age-related rules and practices and then check them against the exemptions. If no exemption is available, the trustees must then determine how they wish to deal with the problem.
It reminds trustees that they should also review their discretionary practices to check that they are compliant. They will also need to work with employers to determine their pensions policy in respect of individuals who remain working after normal retirement age. Trustees will, no doubt, be pleased to learn that any rule amendments made in order to comply with the Regulations are exempt from the statutory consultation procedure (See Employers must consult on changes ).
DTI action
The DTI has launched a "capacity building" programme. The aim of this is to develop the capacity of intermediary organisations such as trade unions to deliver guidance to individuals on their new rights as a result of the Regulations and to inform employers of their new obligations.
The government is also intending to review the default retirement age of 65 in 2011. The review will look at the evidence of trends in employment rates among older workers, longevity and evolving employment practices among employers. It will then consider whether normal or default retirement ages should be abolished completely.
1 Employment Equality (Age) Regulations 2006 (SI
2006/1031), available from the OPSI website (www.opsi.gov.uk
) via "Legislation", "
2 "The Impact of Age Regulations on Pension Schemes", available from the DTI's website (www.dti.gov.uk ) via "Employment matters", "Discrimination in employment" and "Age discrimination legislation" and then click on the title under "Related documents" in the right-hand menu.
3 "Age and the Workplace. Putting the Employment Equality (Age) Regulations 2006 into Practice", available from the Acas website (www.acas.org.uk ) via "Equality and diversity" and then clicking on the relevant icon under "Downloads", or from the DTI website (see footnote 2).
4 Metcalf H with Meadows P, "Survey of Employers' Policies, Practices and Preferences Relating to Age", DWP Research Report no.325, DTI Employment Relations Research Series no.49, available from the DWP website (at www.dwp.gov.uk/asd) via "Research", "Research Report Series" and "2006".
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Our research This feature is based mainly on the Employment Equality (Age) Regulations 2006 and the accompanying guidance produced by the DTI and Acas. We have also used the report issued by the DTI on the responses to the consultation on the draft Regulations and the regulatory impact assessment, and benefited from advice on some points from solicitors Hammonds. |
