Biggest Overhaul of pensions for 50 years

A-Day Simplifications

The Age Regulations outlaw age discrimination in employment and vocational training. They cover the usual suspects, including (but not limited to) job applicants, employees, agency workers, as well as partners, trade union members and anyone in vocational training.

As with the other strands of discrimination legislation, the Age Regulations prohibit direct and indirect discrimination, harassment, victimisation and post-employment discrimination.

The definitions of direct and indirect discrimination will be familiar to many, with one major difference – under the Age Regulations employers will be able to justify direct age discrimination provided that they can show it is a “proportionate means of achieving a legitimate aim”.

The Age Regulations contain a number of specific exemptions, removing in those cases the need for employers to rely on the general justification provisions outlined above. The key exemptions cover the following areas:

The Age Regulations allow employers to retire employees at or above 65 (the new national default retirement age). Such dismissals will not be unlawful under the Age Regulations. Compulsory retirement below 65 will be unlawful unless the employer can objectively justify it (which will be extremely difficult). This exemption adopts a narrow definition of employee, meaning that it will not cover workers, partners, and office holders. This makes the compulsory retirement of such individuals at any stage unlawful unless it can be objectively justified. It is unclear why the Government has chosen to limit the exemption in this way.

As the Government recognises that many employers use service-related pay and benefits as a means of encouraging and rewarding loyalty, the Age Regulations contain a specific exemption for employment benefits, which means that employers will still be able to offer them based on length of service but only subject to satisfying certain conditions. The exemption refers only to “benefits” but it appears to be accepted that this covers both pay and non-pay benefits. If employers provide benefits based on length of service of more than 5 years they will have to show that it “reasonably” appears to them that the use of length of service “fulfils a business need of [their] undertaking (for example, by encouraging the loyalty or motivation, or rewarding the experience, of some or all of [their] workers”. While there is no guidance on what is meant by “reasonable”, the Government appears to want to make it as easy as possible for employers to continue to use benefits based on length of service and therefore the threshold for compliance should not be too high. Having said that, employers will presumably be required to do more than merely state they hold such a belief, though what evidence in support could be adduced is unclear – perhaps a set of board minutes considering the point would be helpful.

The Government has preserved the age bands contained in the national minimum wage legislation, as it believes it is important to encourage employers to continue to employ younger employees.

As the Age Regulations contain a number of exemptions concerning age-related rules or practices in occupational pension schemes, such schemes are likely to remain largely unaffected.

The Age Regulations introduce the new “duty to consider” procedure whereby employers will be under an obligation to inform employees of their right to request working beyond retirement between 6 and 12 months prior to the intended retirement date and to consider such requests if and when they are made. This right is loosely modelled on the existing right to request flexible working.

As a general rule, if an employee makes a request to continue working his employer will be under an obligation to have a meeting with him to discuss his request, notify him of its decision and give him the right to appeal if he is not happy with the decision. Of most interest to employers will be the fact that they will not be under any obligation on the face of it to give any reasons for turning down a request to work beyond the intended retirement date. Provided it is a genuine retirement and the employer has followed the “duty to consider” procedure (or at least has gone through the motions) there will be little scope for employees to challenge any decisions to retire them.

The statutory dismissal procedures will not apply to retirement dismissals. Instead, employers will be required to follow the new “duty to consider” procedure.

If an employer fails to comply with its duty to inform an employee of his right to request working beyond the intended retirement date, a Tribunal will have the power to make an award of up to 8 weeks’ pay (subject to the statutory cap, currently £290). A failure to comply with the procedure will also have implications for the fairness of a dismissal.

The Age Regulations will make a number of amendments to other key pieces of employment legislation, including:

(a) the statutory redundancy scheme – this will be amended to remove some of its age-related features. The lower and upper age limits and “phasing down” provisions will be removed but the Government has decided to retain the multiplier based on wide age brackets as well as the 2-year qualifying period, the length of service provisions and the 20-year cap.

(b) the unfair dismissal regime – the upper and lower age limits will be removed, but the 1-year qualifying period will stay.

At the same time the provisions governing when a dismissal will be fair or unfair will also change. The Age Regulations introduce a new potentially fair reason for dismissal, namely retirement. Once an employer has established that the reason for dismissal was retirement, then the dismissal will be fair unless it failed to comply with the “duty to consider” procedure. The normal unfair dismissal principles governing reasonableness will not apply to retirement dismissals.

The Age Regulations contain complicated provisions dealing with retirement dismissals in the 6-month period after the legislation comes into force.

Employers should identify those employees who will be coming up to retirement during this period and consult the Regulations to ensure they do not get caught out.

The Regulations will have implications for all employers and will require a change in attitude as much as a change to policies and procedures. As a starting point, employers should be taking the time between now and 1 October 2006 to review their policies, procedures and working practices to ensure they are age-compliant. If employers wish to minimise the risk of complaints it is also essential that employees are provided now with guidance and training on the impact of the new legislation. Those individuals who are responsible for managing, recruiting or training employees may require specialist training, as these are the areas in which claims are most likely to arise.

If you require any further information about the services that we provide or would like to review your financial planning position, please contact us

Back to Articles