20 October 2006
New proposals on how age discrimination rules will be applied to
pension schemes could result in employers either being forced to
reduce members' benefits or go through the costly exercise of
setting up a new pensions trust, warns Mercer Human Resource
Consulting.
Consultation on the proposals closes on 20 October and Mercer's
research shows that, if the regulations are implemented in their
current form, at least a third of pension schemes could be
affected.
The draft regulations will severely restrict employers' ability
to have more than one section in their pension scheme. For example,
it will be difficult for them to place new employees in a defined
contribution section and allow existing staff to continue building
benefits in a defined benefit section. This is because it is deemed
indirectly discriminatory for members of the same scheme to receive
different levels of benefits, since new employees are generally
likely to be younger than existing scheme members.
Consequently, employers may be forced to either set up a new
scheme under a different trust, which can be complicated and
expensive, or offer all scheme members the same benefits in future.
In many cases, this will mean all employees are moved into a
defined contribution scheme, which is likely to result in benefits
being reduced.
Dr Deborah Cooper, Principal at Mercer, said: "The Government
seems to be so fearful of failing to properly implement the EU
Directive on age discrimination that it is prepared to erode the
structure of UK occupational pension provision. Many companies
could be affected by the new proposals, including those that have
closed their defined benefit sections to new staff but not changed
their provision for existing scheme members. These employers will
now be pushed into a corner and may have little option than to
reduce existing members' benefits in order to comply with the new
age discrimination rules."
Implementation of the age discrimination regulations as they
apply to pension schemes has already been delayed as the original
proposals were deemed unworkable. Following this consultation, they
are due to be implemented on 1 December this year.
"The Government needs to get back to the drawing board and come
up with a set of proposals that schemes can work with and that will
not damage pension provision for members," commented Dr Cooper.
Mercer believes the Government should largely exempt pension
schemes from the regulations, rather than attempt to exclude
specific rules that may only apply to some schemes. It can then
target the few scheme rules and practices that it feels should not
be permitted, for example, insisting that a pension needs to be
taken at a certain age.
Dr Cooper said: "Employers have been faced with a raft of
legislation in the last few years that has made it increasingly
difficult to continue providing defined benefit pensions for
existing members. Through these age discrimination proposals, the
Government is going a step further and attempting to micro-manage
employers' benefit and remuneration policies."
