skip to content

Articles

Preparing for the upcoming age discrimination legislation

Author: Alan Fowler (afowler@pwtadvice.co.uk) - 04/04/2005

Spring has sprung but the wail goes on for the age discrimination legislation.

The legislation, as a whole, will concern employers from both an employment and a pensions perspective and, in the lead up to its implementation in October 2006, will require measures to ensure compliance.

Although implementation may seem some way off, employers would do well to start preparing early. For example, companies could carry 0ut an audit of age-related policies. But some surveys suggested that retirement age and how it will sit with an employer's pension arrangements was a very real concern tor most employers. While the pensions focus will, inevitably, be on retirement, it is important employers do not overlook the fact that age discrimination is not just a retirement issue and will affect younger employees too.

So far, there has been little detail on how the legislation will deal with the pensions aspects of age discrimination. It seems likely that the early government view that age discrimination obligations should not affect the normal operation of pension schemes will be wide of the mark. At an early stage. the government said it would take advantage of scope within the EU directive to incorporate a form of exclusion allowing schemes to fix ages for admission or entitlement to benefits. There seems to be an acceptance, for example, that pension schemes need a normal (rather than mandatory) retirement age as a benchmark against which benefits can be calculated.

Employers will want to know whether any age discrimination (which could be direct or indirect) wiII be permitted. Broadly, there is defence to age discrimination, but only if that discrimination can be objectively justified and, in EU directive speak, it is for a legitimate aim and that the arm achieved is appropriate and necessary. ln other words, the framework has been set, but It remains to be seen exactly how that will be translated into UK law and, more particularly, how it can accommodate the peculiarities of UK pension schemes.

Pending the legislation, employers should consider areas where their scheme might be affected. and what measures would be required to address them. Naturally, each scheme will be affected in different ways, but possible areas of concern could include age, and possibly service-related contributions or benefits; ceasing accrual (or providing different benefits) when a member continues in service; and benefits calculated by reference to potential service. Some scheme terms may currently benefit older employees, while some may benefit younger employees. Either way, unless the discrimination can be justified, measures will be needed to rectify the discrimination.

A particularly topical issue is how age discrimination might impact on schemes with a closed final salary section (typically for older and longer service members), but an open defined contribution section (typically, for new, shorter service, entrants). Such arrangements have become common in recent years. If such arrangements cannot be justified, the implications (or such schemes, the sponsoring employers and their members could be significant.

So many uncertainties. The solution is to bring on the legislation, and soon. Let's just hope it'll have been worth the wait.

« Back to Articles

Please Note:
These articles were based on the legislation in force at the date of publication. The laws may well have changed since. These articles should not be taken as being or replacing proper legal advice.

Articles

Proposed Changes to Pensions Legislation

The draft Finance Bill was issued on 9 December 2010. Royal Assent is not expected until July 2011, so it is possible the laws summarised below may change before they are enacted. Comments on the draft legislation are invited before 9 February 2011.

Read more