Employee shelf-life

- Last updated on GMT

Related tags: Retirement, Pension

Employee shelf-life
People don't generally like to think about age, but new laws will force employers to pay careful attention to it, says Richard Lee of Wragge & Co

From October 1, 2006, the Employment Equality (Age) Regulations will make it unlawful for occupational pension schemes and employers to discriminate against members or prospective members on the grounds of age.

The government's intention was for occupational pension schemes to continue largely unaffected. However, the final draft of the regulations does not reflect this and action needs to be taken now to avoid any unwelcome surprises, says Richard Lee, head of Wragge & Co LLP's Combined HR Solutions Team. "Pensions and age are not really on people's radar, but now they will be major issues for employers and trustees."

However, there are some exceptions within the regulations for pension schemes, says Lee. In money purchase schemes it is possible to have different contribution rates for different ages if the purpose of the rule is to provide equal benefits for members of different ages. This also applies to final salary schemes if the reason for having the different contribution rates is to reflect the increased cost of providing benefits as members get closer to retirement.

Discrimination will only be lawful if it falls within an exception or can be "objectively justified". According to the Department of Trade and Industry (DTI) this means it must pursue a legitimate aim, such as providing promotion prospects to retain people; and be a proportionate means of achieving that aim. However, cost benefits alone are not sufficient.

Lee foresees several potential problem areas. First, having a requirement for members to leave service with the employer before drawing a pension will now be discriminatory. For example, assuming his retirement age is 65, a 55-year old who wants to receive his pension but continue in work is giving up 10 years' service where he could build up benefits in the scheme, whereas a 64-year old in the same position would only be giving up one year's service.

Secondly, a rule requiring employer consent for members to take early retirement before the age of 60 but not after will now be seen as discriminatory to younger members. "Employers and trustees should carry out an audit of their pension schemes," warns Lee. "If something is seen as discriminatory and can't be objectively justified it should be amended or removed. If no action is taken benefits will automatically be taken up to the same level as the non-discriminatory level." FM

Richard Lee​ is head of Wragge & Co LLP's Combined HR Solutions Team

Related topics: Legal