Forthcoming age discrimination regulations will have a much greater impact on pension schemes than originally anticipated, and many employers will face significant extra costs to ensure their schemes are compliant, experts have warned.
Under the regulations, which come into effect in October, companies with defined benefit schemes will have to review their arrangements relating to early and late retirement. Revisions might also be needed to any schemes that only let employees join following a waiting period.
For employers with defined contribution schemes, age-related contributions could cause a problem, according to Mercer Human Resource Consulting.
Although these contributions appear to be exempt under the regulations, the exemption only applies in limited circumstances and the guidance provided by the Department of Trade and Industry is not helpful, it said.
Unless the regulations are revised, they could discourage companies from providing occupational pensions, and even defined contribution arrangements, for their employees, said Deborah Cooper, principal at Mercer.
“While it is a laudable aim to try to reduce workplace age discrimination, it is difficult to apply the regulations to pension schemes which, by their nature, discriminate between people who are young enough to work and those who are not,” she said
“Defined benefit pension arrangements are particularly complex and their benefit structures vary considerably between schemes. The government has chosen to implement the European Directive by exempting certain pension scheme practices in a selective and obscure way.”
Mercer believes the government should consider applying a general exemption from the age discrimination regulations to pension schemes, rather than exempting certain rules that may only apply to some schemes.
“Helping employees to defer their pay for retirement income seems to be a legitimate role for employers and one that should not be constrained by regulations intended to provide equal treatment for people of working age,” said Cooper.
“If the regulations cannot be amended in time, there is a good case for deferring their implementation until amendment is possible.”