The Chancellor has announced in yesterday's budget that the Government will shortly launch a formal consultation on reforming the Default Retirement Age (DRA). The budget also contained announcements on October's increase in the National Minimum Wage rate and measures applicable to higher rate tax payers.


Reform of the DRA will directly affect all employers and could fundamentally change current practices on succession planning, recruitment, performance management and of course retirement.


Proposals in the budget that affect employers include:-

  • The announcement that the Government will shortly launch a formal consultation on reforms to the DRA. According to the Treasury the consultation will consider a number of options:
    1. Removing the DRA
    2. Increasing the DRA – and
    3. 'Reforming the legislative framework to strengthen the position of the employee'.

However the Government confirmed that no changes will be made to the DRA before April 2011.

  • The Government announced that in line with recommendations from the Low Pay Commission, the rate of National Minimum Wage will increase by 2.2% to £5.93 in October 2010.
  • As announced in April 2009, higher rate tax relief on pension contributions will be restricted from April 2011 for individuals with gross incomes of £150,000 and over.
  • From April 2010 a new 50% top rate of tax will apply to individuals with incomes over £150,000 and the income tax personal allowance will gradually be withdrawn for individuals with incomes over £100,000.
  • In respect of employer provided child care and child care vouchers, the current exemption from tax and National Insurance Contributions (NIC) if the child care and/or vouchers are "generally available to all employees" will be amended in the case of low paid employees. At present, low paid employees are excluded from these benefits if their employer offers them through a salary sacrifice arrangement which has the effect of reducing their salary to below the national minimum wage.
  • Personal allowances will remain at their 2009/10 levels (£6,475 for individuals under 65).
  • From April 2011 there will be a 1% increase in National Insurance Contribution rates.