19 July 2006
A report from pension advisers Hewitt Associates has called on
the government to defer new rules about age discrimination in
pension schemes, amid warnings that they are unclear and difficult
to apply.
A survey by Hewitt Associates has found that four out of ten
money purchase pension schemes pay contributions based on age and
length of service and could therefore fall foul of new age
discrimination legislation, due to come into force in October.
Under such schemes, older workers tend to enjoy higher employer
pension contributions than younger staff, which has the potential
to be considered discriminatory against younger workers.
Andrew Cheseldine, a specialist in money purchase pensions at
Hewitt, said that the differing contributions would probably be
acceptable if a company could prove that the intention of giving
higher contributions to older workers was to produce a more equal
outcome in terms of pension at retirement. But a two-band
structure, such as one paying much more to over-50s and much less
to those under 50, would almost certainly be discriminatory, when a
multiple-band one would not.
Mr Cheseldine said that the problem is that precisely what is
and is not discriminatory would be "open to interpretation". The
"lack of clarity" meant many pension schemes were "potentially
vulnerable to claims from members who feel they have been
disadvantaged," he added.
Hewitt warned that the regulations could discourage companies
from continuing defined contribution occupational schemes, and said
there was a danger that some firms could cut contributions for
older workers, rather than raise them for younger ones, to avoid
discrimination claims.
