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Abolition of Default Retirement – Benefits

21st April, 2011

Employers will no doubt be aware that the Default Retirement Age (“DRA”) was abolished on 6 April 2011 by the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 (“The Regulations”)

When the Government announced its plans to scrap the DRA last year, a period of consultation took place and this revealed that 74.6% of businesses questioned were concerned about the impact that the abolition of the DRA would have on insured benefits. 52.3% were worried about the impact on employee share schemes.

The main concern regarding the provision of insured benefits, most notably medical insurance or private health cover, was the high cost of providing such a benefit to employees aged 65 or over. Previous legislation made it unlawful to place age or length of service restrictions on an employee’s entitlement to benefits. With proposed removal of the DRA, bearing in mind the additional cost of providing such benefits to over 65s, many employers made it clear that they would simply stop providing such benefits altogether.

In January 2011, The Department for Business Innovation and Skills (BIS) published a response to the consultation entitled: ‘Phasing Out the Retirement Age Government Response to Consultation’. The document stated that the Government would bring forward regulations which would introduce an exemption to the principle of equal treatment on the grounds of age where group risk insured benefits are provided by an employer. It was perceived that the withdrawal of such benefits would be permitted and that the exemption would apply initially to employees aged 65 and above and would rise in line with the State Pension Age.

As mentioned above, the Regulations came into force at the start of this month and as promised, include the exemption in relation to the provision of insured benefits.

The Regulations have amended the Equality Act 2010 to state that it will not constitute age discrimination to limit access to insurance or related financial services to employees who reach the age of 65, or the state pensionable age (if greater).

The Government declined to make any legislative changes in respect of employee share schemes, on the basis that there was not enough evidence to suggest the abolition of the DRA would have any adverse impact on such schemes.

Occupational Pension Schemes are not affected by the abolition of the DRA.

For more information on this, or any other employment matter, please contact Helen Watson on 01244 405565 or email her here.

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