- Age discrimination and pension schemes
- April 19, 2006
- Law Firm: Mayer, Brown, Rowe & Maw LLP - Chicago Office
The Age Discrimination Regulations come in on 1 October 2006. The requirements do not apply to benefits in respect of service before that date. They should have limited impact on occupational schemes and allow for many sensible age-related provisions including:
- (generally) a minimum age for scheme admission;
- age-related contributions to occupational or personal pension schemes;
- age-based actuarial calculations;
- having different benefit structures for new employees/new joiners after a given date; and
- benefits in defined benefits schemes will be able to accrue at the same rate irrespective of age - though not (without objective justification) at different rates for older members or older joiners.
There are however a number of issues. Among others:
- unless there is justification, it seems schemes will not be able to stop benefits accruing, while a member remains in service, merely because the member has reached a particular age;
- where a scheme caters for life-cover-only members as well as other members (or only for life-cover-only members), it would be unsafe to assume that there can be a minimum admission age;
- though there has been an attempt to authorise bridging pensions, the drafting of the regulations does not quite seem to achieve this;
- in some cases there may be a problem with offering benefits that allow for prospective service, e.g. on ill-health or redundancy; this may only be achievable for members below early retirement pivot age where the enhancement is by reference to potential service up to early retirement pivot age;
- schemes may have to consider whether there is justification if they target a pension of say two-thirds final salary at a given retirement age - which means older joiners accrue faster; and
- likewise they may have to consider if there is justification if they offer members an unreduced pension when their age plus their period of pensionable service reaches a particular total - so-called golden number rules or a "rule of 85" - as rules like this mean that younger joiners can effectively accrue benefits faster than older ones.
For employment purposes, 65 will be the default retirement age; compulsory retirement at a lower age will need to be objectively justified. Employees will be able to request working past age 65 and the employer will have to reasonably consider that request.
An employer will have to notify employees, at least 6 months before compulsory retirement age (or otherwise at least 6 months before the employee reaches 65), that they have a right to ask to work longer. Otherwise the employer may face an unfair dismissal claim and could have to pay compensation of up to 8 weeks' salary subject to a cap (currently £290).
There will be no breach of age discrimination requirements if the rules of a scheme provide for contribution rates to be the same for members of all ages. Higher contributions for older members of money purchase arrangements will be permissible where the aim is to produce more equal benefits than would follow from equal contributions at all ages.
Trustees and employers will need to consider possible changes to their scheme, most importantly if the scheme rules currently say that benefits stop accruing at a particular age even if the member is still employed.
There will be a statutory power for trustees to amend the scheme rules to ensure compliance - which is only an issue for pensionable service post 30 September 2006. However the trustees will need to obtain employer consent where the employer has any say in the scheme amendment power.