Default Retirement Age

The Government has announced that it is committed to phasing out the statutory Default Retirement Age (DRA) which is currently set at age 65 and this change looks set to be implemented within a very short time. The Department of Work and Pensions (DWP) "Business Plan" for 2011 to 2015, published this month, sets out a timetable for reform in a number of areas. Included within this Business Plan is a commitment to develop regulations to remove the DRA and lay these before Parliament, with the intention being to do this between January and April next year. With such a significant change just around the corner, trustees, managers and sponsoring employers need to act now to co-ordinate the approach taken by pension schemes and through employment procedures/strategic workforce planning. The date for abolition of the DRA is 1 October 2011, but the last date for notification of retirement at DRA is 31 March 2011 (taking into account the six month notification period).

The Government ran a consultation exercise on the phasing out of the DRA between the end of July and 21 October this year. The outcome of that consultation has yet to be published, but it included proposals for transitional arrangements phasing out the DRA to be introduced from 6 April next year, with no new notifications of retirement under the DRA being able to be issued during this period of transition. From 1 October 2011, the DRA and statutory retirement procedures will be completely abolished. Provisions which currently prevent an employee from claiming unfair dismissal or age discrimination when dismissed on retirement, will also be revoked. In the absence of a DRA there is still scope for a compulsory retirement age, but it is far more complicated to operate.

Employers will need to consider whether to abandon the concept of compulsory retirement altogether or to retain a compulsory retirement age across the board or on an individual basis. Without the statutory DRA, however, any compulsory retirement age would need to be appropriate and objectively justified – i.e. it would need to be a proportionate means of achieving a legitimate aim.

We would suggest that trustees, scheme managers and employers will need to liaise with their advisers on this issue immediately in order to be ready for the changes. Particular areas on which to focus are numerous but should include:- workforce planning; dealing with upcoming retirements of known individuals; policy on retirement going forward; contracts of employment; impact on group insured benefits; share incentive schemes; collective agreements; flexible retirement policies; and, of course, the terms of the pension scheme trust deed and rules.

Disclosure - changes to requirements for schemes

As you may recall from our March 2009 Bulletin, the DWP carried out a consultation exercise early last year on the disclosure of information requirements applicable to pension schemes. The disclosure requirements relate to the duty imposed upon both trustees and sponsoring employers of occupational pension schemes to disclose certain information about the scheme to members. Regulations amending these disclosure requirements were laid before Parliament at the beginning of this month and will come into force on 1 December.

By way of background, at the time of the consultation last year, the DWP was considering including a high level disclosure principle providing that "Members should be given sufficient information that allows them to understand the benefits to which they will be entitled and any other relevant information that will enable each member to make decisions in his or her best interests." This very wide statement, which would have been difficult for trustees and employers to comply with on a practical level, was subsequently dropped amid fears it could create uncertainty and be counter productive. Plans to produce consolidated disclosure requirements in one piece of legislation were also dropped, as were proposals to remove specified timescales and replace them with a general requirement to provide information "within a reasonable period".

The new requirements, due to come into force at the beginning of December, allow schemes to make use of electronic communication methods and also permit defined contribution schemes to provide more concise annual benefit statements to members. Schemes which are currently compliant with the existing disclosure regime will not require to introduce any changes following the introduction of the new legislation, but may wish to do so to take advantage of potential cost savings associated with electronic communication.

The new provisions allow pension schemes to use e-mails and websites as their default method of providing information to members (unless regulations provide otherwise). Any scheme wishing to take advantage of the new legislation by switching to electronic communications for compliance with the disclosure regime will, however, need to bear in mind a number of safeguards put in place to protect members, including:

  • For existing scheme members and beneficiaries not currently receiving information by electronic means, it will be necessary to give them advanced warning (in writing and issued by post) that the trustees are proposing to provide them with relevant information by electronic means and that they have a right to opt out;
  • Any members opting out of electronic communication must continue to receive written information by post;
  • Electronic communications must be designed so that members or beneficiaries will be able to get access to and store or print the relevant information;
  • The design of electronic communications must also take into account the requirements of disabled persons.