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					Age Matters: Response
Introduction to our comments;

The Independent Pensions Research Group (IPRG) is a network of trade union
activists, member trustees, occupational pensioners and pension specialists
concerned with both occupational and state pensions. We welcome the opportunity
to comment on the details of the legislation required to bring into effect the age
strand of the European Employment Directive 1 from October 2006.

We are concerned, however, that the consultation document says so little specifically
about pensions. Occupational pension schemes as generally operated in the UK
involve significant forms of age discrimination, quite apart from the issue of normal
pension age discussed above. The Government say that they have obtained an
exemption for such schemes in the Directive, but the way in which this will apply is
not covered in the discussion document. In any event, we would not wish to see a
blanket exemption for occupational pension schemes as some forms of age
discrimination in such schemes are both unnecessary and run against the
central purposes of the directive.
The exemption for what are described in Article 6 for “occupational social security
schemes” is not total. It refers specifically to:
ages for admission or entitlement to retirement or invalidity benefits;
age criteria in actuarial calculations,.
These are relatively narrow exemptions, and are subject to a requirement that it
should not result in discrimination on the grounds of sex. They are permissive rather
than automatic.

The only explicit reference to Article 6 para 2 in the consultation document is in
paragraph 4.14. This states that it will take advantage of the exemption to allow
occupational pension schemes to set ages for admission or entitlement to retirement
benefits arguing that a normal pension age – that is, the date from which full scheme
benefits are payable without actuarial reduction or enhancement, is necessary for the
operation of defined benefit schemes.

There is, however, no mention of the exemption being applied to other types of
scheme provision including, in particular, the exemption for the use of age criteria in
actuarial assumptions. It is possible that the Government take it for granted that the
exemption will be applied in this way but the pensions industry need clarification as to
whether this is or is not the case.

We strongly recommend that there should be an additional consultation –
presumably led by the DWP rather than the DTI – on the pensions-related
issues, as set out in this response including that Annex, before the final shape
of the legislation is decided upon.

Q6(a) How powerful a signal do you think abolition of mandatory
retirement age would send?
           The consultation document only refers explicitly to the age at which people
retire from work and not the age at which they become entitled to a full pension,
which they refer to as the “normal pension age”. However, it is inevitable that the two
issues will become associated. We welcome the opportunity for people to work
longer, where they choose to do so, but we do not wish this to be part of a
Government agenda to raise normal pension ages and to make people work for

longer than they wish. It is unfortunate that this issue is being discussed at the same
time as the Government’s proposals to raise pension age in the public sector.
The abolition of mandatory retirement ages would be a powerful signal that
employees have a right to continue in employment so long as they wish to do so and
they are able to do the job for which they are employed. There is an all too ready
acceptance at present that people above a certain arbitrarily defined age have no
place in the work force and legislation in accordance with the Directive would be a
clear public announcement that this is wrong. It would also have a beneficial effect
down the age scale in extending general perceptions of the length of working life.
We are concerned, however, that abolition of mandatory retirement ages
should not also be seen as a signal that people should be expected to work for
longer than they wish, or they have to at present.The Government have
announced policies in relation to pensions and more specifically those in the public
sector that are intended to have the effect of extending the working life. This should
be a matter of choice and not compulsion.

Q6(b              If the legislation made mandatory retirement ages
unlawful, to what extent do you think employers and employees would
be unable to agree on when an employee would retire?
   The way in which this question is phrased is unfortunate, as it still implies that age,
in itself, is a barrier to employment. There is no reason for the arrangements for
deciding whether someone’s employment should continue to differ according to the
age of the employee. As people get older it is more likely that their physical and
mental capacities will decline but the question as to whether an employee has the
capacity to continue doing their job can arise at any age and the criteria should be
the same. Age is a crude substitute for a proper judgement on whether
someone is capable of doing their job. We have seen no suggestion that there
are any problems with the current procedures that employers and employees
can follow, if one or both of the parties consider that the employment in
question should be brought to an end.
One of the main determinants in an employee’s decision whether or not to retire is, in
practice, the availability of an adequate pension. The provisions of the pension
arrangements offered by the employer are particularly important. If the employer
wishes its employees to retire at a particular age then it needs to ensure, in one way
or another, the provision of a suitable pension. Employers do have a legitimate
interest in developing employment policies but as far as leaving work is concerned,
the emphasis should be on offering people attractive terms for retirement, rather than
forcing them out of a job against their wishes.
It is vital that the Government think more seriously about the implications of the
Directive for pensions. In particular, they need to ensure that those taking “late”
retirement under their occupational pension scheme are given fair value for
their additional years of work, and fair protection for death-in-service while
they continue to work.
The consultation document makes a clear distinction between retirement age, when
people are expected to retire, and normal pension age, which is when full benefits
become payable under their occupational pension schemes. The expectation is that
the legislation will lead to many more people working on past their normal pension
age, which leads to the difficulty that occupational pension schemes have a
propensity to discriminate against such people, both in terms of the additional
pension that they accrue and in the death benefits that are paid.
Occupational pension schemes treat those who work past normal pension age in one
of two ways. Many simply let the member accrue further benefits which are then
taken at retirement date without any further enhancement. For example, someone
with 20 years of service at normal pension age who works a further two years, gets a

pension based on 22 years of service and their pay at retirement. Other schemes
stop the accrual of benefit at normal pension age and pay a benefit two years later
based on 20 years of service and pay at normal pension age but increased by an
actuarially based late retirement factor. Neither of these approaches give the
member fair value.
Where schemes simply allow the member to accrue additional years of service, the
member loses out because no credit is given for the pension to which the member
would have been entitled but is not receiving over the two extra years. Where
schemes cease accrual, the members obviously lose out because they do not accrue
any additional benefits. They do get the benefit of the late retirement factors but
these simply represent the value of the pension which has been given up by working
for longer. Either way the member working past normal pension age loses out
compared to the member below that age.
The best and fairest approach would be to allow members to continue to
accrue benefits after normal pension and also to apply late retirement factors
when the member eventually retires to the benefits accrued both before and
after normal pension age.At present there are potential difficulties in this approach
from compliance with Inland Revenue limits, but these will disappear when the new
simplified system is adopted. As far as the age discrimination legislation is
concerned, therefore, we believe that it should require that benefits must continue to
accrue to members after normal pension age.
Death-in-service benefits for employees past normal pension age are often worse
than those for employees under that age. Schemes normally treat those who are in
service who die after normal pension age as if they had retired on the day before
they died. The result is that the lump sum payable to younger members, for example
four times pensionable pay, can be larger than the lump sum payable to older
members which is usually the guarantee, for example five times the member’s
accrued pension. Less often but also possible, is for the dependants’ pensions to be
different. Such differences between employees should be forbidden under the

Q6(c)       Employers would only be able exceptionally to justify
retiring employees on age grounds, or dismiss them for other fair
reasons such as on failing competence grounds or as part of a non-age
based redundancy measure. What do you think would be the
implications and effect of this?
   The main implication is that people will have more choice over the length of their
working career. We understand that some people argue that employers will find it
invidious to have to pick and choose between its employees in this way. From the
perspective of the employees, it is argued that a fixed retirement age shelters people
from the embarrassment, or worse, of being made to retire. However, it is bound to
be the case that under the new legislation people will retire at a wide range of ages
for a whole range of reasons. There will be no reason to suppose that anyone who
retires will be doing so for a particular reason. There is no ignominy attached at
present to someone who retires earlier than his or her colleagues, nor any
reason to suppose it will be any different under the new legislation.

Q6(d) Do you think that the aims set out in paragraph 3.15 are
sufficient for employers to justify their particular retirement age?
From the perspective of providing a pension scheme, the key aim set out in
paragraph 3.15 is “d. encouraging and rewarding loyalty”. There is no doubt that
most employers provide occupational pension schemes for precisely that reason. In

the past, such schemes discriminated significantly in favour of long-service
employees, as compared to those who were members for a relatively short period.
We now have legislation on preservation and revaluation which has reduced the
extent of that discrimination but not eliminated it entirely.
We are not clear, however, about the relevance of this to retirement age. We most
certainly do not favour any proposals which would allow an employer to set an earlier
retirement age for long-service employees than for short-service employees. The
effect that length of service has on other benefits is discussed in the Annex.

Q6(e)                                                                                   you think ther

Q6(f)  Should the Government specify a default retirement age at
which employers would be able to require employees to retire?
Whatever age is chosen will be arbitrary and is almost bound to be inappropriate for
significant numbers of employees. It also has the danger that it might come to be
regarded as the normal age for retirement and, hence, the age at which occupational
pension schemes should provide a full pension. As stressed above, moves to
extend the opportunities to work longer must not be used as a cover for
increasing normal pension age.

Q6(g)     Should the Government specify 70 as the default retirement
          Yes If the case for a default retirement age were to be made then in
current circumstances 70 would not be unreasonable
For many people who are keen to continue working it would represent a significant
increase in flexibility. However, as mentioned above, the figure is entirely
arbitrary and will be inappropriate for some. We therefore recommend that a
mechanism should be established to keep the default age under review.

Annex; Pensions issues on which there should be a further detailed

Entry Age and Waiting Periods: Many occupational pension schemes have
minimum and maximum ages for entry, as well as waiting periods between entry to
employment and entry to the scheme. It should be noted, therefore, that the
legislation applies as much to discrimination against young people as those who are
old. We do not believe that there is any general justification for either lower or upper
age limits on entry to a scheme. It is important that employees should build up
pension rights over as long a period as possible and do not end up having gaps in
their pension accrual. If an employer offers a pension scheme then it should be
available to all relevant employees on equal terms regardless of age and that the
Government should not take advantage of this aspect of the exemption.
We are equally opposed to the use of waiting periods, except possibly for very short
periods such as a few months for administrative purposes. While waiting periods are
not directly discriminatory they are more likely to apply to younger employees and
hence constitute indirect discrimination. We do not think that significant waiting
periods should be permitted.
Accrual Rates: Most members of occupational pension schemes are entitled to
defined benefits based on their service and their earnings at or near to retirement.
This raises a technical problem in that it is more expensive to provide such benefits
for older employees than those at younger ages. This feature is often hidden from
view, with the cost to the employer being expressed as a single contribution rate, but
this rate is simply an average of the age by age rates that apply to each individual
It might be argued, therefore, that defined benefit schemes discriminate against
younger employees. This of course depends on whether it is the cost of the benefits
which has to equal by age or the amount of benefit accrued at retirement. Either way,
we are of the view that in these circumstances there is a justification for such
differences and we would not want the legislation to cause problems for this type of
scheme. We consider that the issue should be dealt with directly in the legislation.
The issue is more complicated for the minority of schemes that have stepped accrual
rates where, generally, older or longer service members have a higher accrual rate.
Other employers have separate schemes for older and younger employees with
different benefits. Such arrangements are often justified on the grounds that this is a
way of encouraging younger employees, who tend to be less interested in pensions,
to start providing for themselves. However, this is better addressed by giving these
employees a choice of scheme, rather then effectively choosing a worse scheme for
them. Such discrimination should not be permitted.
Maximum accrual:There is an associated problem but which discriminates against
older employees, with schemes that set a maximum, usually 40, on the number of
years that accrue for benefits. As a result older members cease to accrue benefits
even before they reach normal pension age. On the face of it such arrangements are
clearly contrary to the proposed legislation and should be banned. There should be
no problem doing this under the proposed new Inland Revenue tax regime, which is
likely to have come into effect before the age discrimination legislation.
Age related contributions:An increasing number of scheme members belong to
defined contribution schemes, a significant proportion of which have age related
contributions. Under these arrangement the employer and sometimes the members
pay higher contributions as the members get older. Nearly always this is because the
scheme is designed to match to some extent a defined benefit scheme which, as
explained above, provides more valuable benefits for older members.
It is not at all clear, however, whether such arrangements will be permitted under the
proposed legislation or even if they are covered by the Article 6 exemption. The issue
certainly needs to be clarified. It is possible that they may be permitted under the

exemption for non-pay benefits based on length of service where the employer can
justify doing so but in this case it might be necessary for the scale to be based on
length of service, rather than simply on age.
Introduction of a new scheme: A similar problem arises with the introduction of a
new scheme where members of an existing scheme are allowing to retain their
existing higher benefits. In such cases it would be possible to argue that there will be
indirect discrimination, in that members of the new scheme are bound to be younger
than those in the old scheme. This problem is not mentioned in the discussion
document but does need to be addressed. What we would not want to see, however,
is the legislation effectively forcing all employees to have the new lower benefits.
Ill health pensions: There is widespread discrimination in occupational pension
schemes in regard to the payment of ill-health pensions, in that there is often a
provision whereby payment and the level of such benefits depends on length of
service. The result is indirect discrimination on grounds of age where younger
members lose out. This is one area where it is clear that the Article 6 exemption
could be applied. However, we believe it would be wrong to do so. Serious
permanent ill-health will have an even more drastic effect on a younger person’s
lifelong earning capacity than on that of an older person. Sensible, and properly
applied, definitions of what constitutes such permanent ill-health are more important
for preventing abuse than arbitrarily applied age limits.
Age related factors: Another area where the Article 6 exemption can apply is in
relation to actuarial calculations. The Government’s example of where this could
apply is commutation factors but it might also apply to transfer values, early and late
retirement factors and additional voluntary contributions (avcs). In general we are not
opposed to such an exemption.
Benefits after normal pension age: This issue has been covered above, in the
main text of our response.


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