Revised draft regulations on the abolition of default retirement age (DRA) were published on 1 March (following an earlier version laid before Parliament on 16 February 2011 which had contained some drafting anomalies). The key provisions are:
- The DRA of 65 will be phased out over a transitional period from 6 April 2011.
- The old regime will still apply to retirements of employees who are 65 on or before 30 September 2011 provided that the employer has given notice ("Notice") of intention to retire on or before 5 April 2011.
- Employers can still have a compulsory retirement age if they can justify it as being a "proportionate means of achieving a legitimate aim".
For more about the regulations, see our employment e-bulletin.
Impact on pension schemes
Pension schemes can still have a scheme normal retirement date (NRD). The government is abolishing DRA not NRD. However, as a result of the abolition of DRA, more employees are likely to remain in employment beyond NRD from as early as 6 April 2011, although if the employer has given Notice, this won't start to happen until after 30 September 2011 (or later where under the transitional arrangements a request to continue working delays retirement to 5 October 2012). The changes are likely to have a number of implications for employers and trustees in relation to employees' pension arrangements. For instance employers may wish to consider whether allowing employees to draw their pension from NRD ,whilst still in employment, may affect employees' commitment to work. Employers and trustees would need to consider the benefits that employees should be given by way of late retirement benefits i.e. further accrual under the scheme or a late retirement uplift (or the better of the two) or perhaps defined contribution benefits for service after NRD. These issues would invariably have been considered before (for instance in the context of carrying out an age-discrimination audit for the scheme) but we consider that they should be looked at again in light of the abolition of the DRA. For more information, please speak to your usual contact in the pensions team.