Blake Lapthorn and Bluefin seminar - 27 September 2011


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Blake Lapthorn and Bluefin seminar - 27 September 2011

  1. 1. An older workforce -The opportunities and thechallenges for employers 27 September 2011 Blake Lapthorn New Kings Court Chandler’s Ford
  2. 2. An older workforce - the challenges andopportunities for employers Background and context What this means from an employment perspective? The impact and issues for different benefits Flexible retirement – a practical option? How well are you placed to meet this challenge?
  3. 3. An older workforce?‘… they are reliable, they are … they will get up in the morning and they will turn in and you know they have got wisdom, you know, they are wise and they are easier to manage.’ small low-flexibility employer, transport, storage and communication‘It is about life skills and ability to handle customers. And I’m generalising a little bit here, but generally older people can handle those sort of complaining customers and have a bit more of an understanding about what people expect as a customer.’ large high-flexibility employer, wholesale, retail and hospitality‘There is no doubt that it isn’t just a cliché. The youngsters come in and they’ll get straight into the computer screens and start driving the plant about whereas the guys in the mill, they will sit in the control room and be oblivious to the fact that something has blocked up.’ - medium sized, medium-flexibility employer,manufacturing and constructionIf I train somebody at 60 I am only guaranteed three years because I don’t know whether they are going to pass the medical.’ - medium-sized, high- flexibility employer, Transport, storage and communication Institute of Employment studies - 2009
  4. 4. An older workforce?“ Other employers acknowledged that there was more serious or chronic illness among the older workforce, but that this was balanced by lower short term absence, and was an issue that could be managed effectively, in the same way as maternity and parental leave is dealt with for those of childbearing age. There was a sense of both pragmatic trade offs and issues of equity and social justice in how some employers thought about the varying health and care needs of different age groups.”“ Much has been written about the discriminatory potential inherent in large rises in insurance covers for older workers, which may have a disincentive effect on employers. Few of the employers in our case studies had experienced this as an issue, but for those which had, it was quite a significant factor, although none admitted that it had a direct influence on their recruitment practices” Institute of Employment studies - 2009
  5. 5. The (distant?) future of retirement
  6. 6. Life expectancy rises by 44 days in just one year
  7. 7. Most of Europe is worse than this!!!!
  8. 8. Removal of theDefault Retirement Age (DRA)
  9. 9. The end of the Default Retirement Age (65) The DRA was abolished on 6 April 2011 so ‘Retirement’ is no longer a ‘fair’ reason for dismissal. Any dismissal because of age will now constitute direct age discrimination (and an unfair dismissal) under the Equality Act 2010 – apart from in rare cases where it can be objectively justified. If it can be objectively justified, the dismissal will fall under SOSR. As most employers accept that they cannot objectively justify = emphasis now on correctly and fairly managing performance/capability issues, whatever the age of the employee.
  10. 10. Choices for employersEither….. A - Abandon fixed retirement ages altogether – any dismissal must therefore fall under one of the other five fair reasons for dismissal (eg capability); or B – Retain a fixed retirement age – but if you do – you must be able to objectively justify why you still need one.
  11. 11. Cases: Objective Justification Fact sensitive, but ultimately you must be able to demonstrate….1. Legitimate aim (or a real business need)2. That fixed retirement age meets that need3. That the retirement age meets that legitimate aim/business need in a proportionate way Look to case law on retirement of non-employees for guidance on how the Tribunal/Courts deal with such issues….
  12. 12. Cases on objective justification Where retirement age was justified: – Seldon v Clarkson Wright 2010 - Partners in law firm to retire at 65 – Rosenbladt, ECJ 2010 – German case - retirement when the employee could claim a statutory pension, age 65 Where retirement age was NOT justified: – Baker v National Air Traffic Services – could not demonstrate that performance declined with age – Martin v Professional Game Match Officials Trend that Tribunals and Courts will adopt a rigorous approach and that more evidence will now be required to justify fixed retirement age
  13. 13. Practical Advice – Managing Performance andCapability Informal management – Noted – Training – Appraisals/reviews – Clear objectives Formal disciplinary procedure – ACAS code and internal procedures – Warnings – Support/training – Time to improve – Advising if could lead to dismissal
  14. 14. Practical Advice – Workplace Discussions Do: Don’t: – Hold regular – Ask discriminatory appraisals/reviews questions such as ‘why for workforce don’t you retire to avoid an planning – at least undignified sacking?’ or annually indicate that older workers – Discuss are blocking younger employees’ future workers plans – short, – Focus these discussions medium, long-term only on certain age groups – Provide training to – ask the same questions management on of all employees age discrimination
  15. 15. Practical Advice – Review of Documentation Review ACAS guidance Remove fixed retirement ages from contracts and notify staff of the change to their contract Revise retirement policy documentation – positively stating you will not retire at a fixed age will guard against claims Tighten up your capability/performance management policies
  16. 16. Pitfalls to watch out for Inconsistent treatment Discriminatory comments/approach Nb. age discrimination applies to all ages Managers reluctance to manage older employees
  17. 17. Case study - Retirement Sprightly Limited want to retire Wendy, aged 65. They are concerned she is not up to the job as the markets have become so competitive and she has not been meeting her targets. Plus, they dont feel she now fits the ambitious team of managers they have recruited over the years. However, they do not want to upset her and because of this, they have turned a blind-eye to some of her failings. Sprightly have received an email from another employee John, aged 34, which raises concerns over how the directors criticised his performance in their last quarterly meeting. He states other colleagues do not appear to be treated the same. Sprightly are not really concerned as it was clear John had not met his targets and so, they state, what is he complaining about?
  18. 18. Case study Retirement1. What should/could Sprightly have done better, if anything?2. How should they deal with their concerns with Wendy?3. How should they deal with John’s concerns?
  19. 19. Any questions? Alternatively, please contact me: – – 023 8085 7432
  20. 20. Removal of the DefaultRetirement Age – Impact onEmployee Benefit DesignDavid Hepplewhite27 September 2011Bluefin1 AldgateLondon EC3N 1LPt 020 7709 4863f 020 7709
  21. 21. Typical Employee Benefits• Pension scheme (DB or DC)• Private medical insurance• Life assurance• Long-term disability insurance• Flexible benefitsWhat are the options?
  22. 22. Assessing risk Safe Low risk Manageable risk A significant gamble Not lawful
  23. 23. The six step process1. Establish what the treatment is2. Make sure that there is a relevant comparator3. Decide if there is any discrimination4. If there is, see if there is an exemption which covers it5. If there is not, consider objective justification6. If this is also not possible, remove discriminatory feature
  24. 24. Insurance related benefits
  25. 25. What solutions are potentially available? 1 • Show the employer’s treatmentEstablish what the treatment is does not concern the age related premiums 2 Make sure thatthere is a relevant comparator
  26. 26. What solutions are potentially available? 3Decide if there isany discrimination 4 • Make use of risk benefitsFind an exemption which covers it exemption introduced on 5 April 2011
  27. 27. Risk benefitsUseful exemptions • Life assuranceRisk schemes – • Income protection and related financial servicesbenefits can cease • Private medical, dental and sickness insuranceat 65 • Accident insurance • Uninsured benefitsNot exempt • Cover in non-employment based relationshipsAge 65 limit to rise • SPA rising to age 66 by 2020 (or perhaps earlier)when state pension • SPA rising to age 67 by 2036 (could be earlier)age (SPA) rises • SPA rising to age 68 by 2046 (could be earlier)
  28. 28. Objective justificationKey questions 5 • What is my legitimate aim?Consider objective • Is there a less discriminatory way justification to achieve that aim? • Does the policy achieve that legitimate aim? • Is any discrimination outweighed by the benefit? • Do any features of the policy contradict the purported legitimate aim?
  29. 29. What solutions are potentially available?• Justify with a legitimate aim of improving the recruitment, retention and motivation of employees• Show that the policy is a proportionate means of meeting that aim• Show that facilitating insurance, even with age related premiums, is more beneficial to older persons
  30. 30. What solutions are potentially available? 6 • Provide private medical as Remove a core benefit with an equal cost discriminatory feature • Provide cover outside of flexible benefits scheme • Adjust cover level and flexible benefits allowance to manage costs
  31. 31. What solutions are potentially available? (cont’d)• Provide private medical as a core benefit with an equal cost• Provide cover outside of flexible benefits scheme• Adjust cover level and flexible benefits allowance to manage costs
  32. 32. What are the pitfalls to be aware of?• Have a proper process in making decisions supported by advice• Existing scheme documentation and employment contracts can be an issue• Think about the broader implications and situation• Age to which insurance contracts are written
  33. 33. Pension related benefits
  34. 34. Depends on the type of workplace pension scheme• Contract based Pension Schemes • Group personal pensions (GPPs) • Stakeholder pension schemes• Occupational Pension Schemes • Under trust (either employer specific or master trust) • Trustees have to follow non-discrimination rule • Defined benefit (DB) or money purchase benefits or hybrid• Non-registered pension arrangements
  35. 35. Getting the terminology right• Default retirement age does not equal normal retirement age• Target retirement age is still appropriate in contract- based pensions and money purchase occupational schemes
  36. 36. Assessing risk Safe Low risk Manageable risk A significant gamble Not lawful
  37. 37. Contract-based schemesUseful exemptions • Minimum ages for contributions • Different minimum ages for different groups ofLimited exemptions employees • Age related contributions where the purpose is to ensure benefits are equal • Age related contributions where the purpose is to ensure that benefits are more nearly equal across age groups • Differences in contribution rates based on different levels of remuneration received • Limitation on contributions based on a maximum salary • Service related practices (but if more than five years it must fulfil a business need) • Equal levels of contributions regardless of age
  38. 38. Defined contribution schemes • Age-related rates where the advice and evidence supporting the different rates is old (particularly pre-2006) and not formally documentedA significant • Different age-related rates of gamble contribution from historic arrangements that have not been reviewed or were only reviewed many years ago
  39. 39. Defined contribution schemes • A maximum age limit on employer contributions without any objective justification Not lawful
  40. 40. Defined benefit schemes• Our interpretation of where policies could lie on the risk spectrum• How the law will operate is still uncertain• Refer to the Scheme rules
  41. 41. Defined benefit schemes • Ceasing further accrual at age 65 and • Offering membership of a money purchase occupational scheme or groupA significant personal pension where the combined gamble value of new contributions and actuarial enhancement is roughly equivalent to the average cost of new defined benefit accrual
  42. 42. Defined benefit schemes • No further accrual or enhancement of past accrual for members who have reached the normal pension age while those below that age continue to accrue benefits Not lawful • Switching employees after age 65 to fixed term contracts and offering them membership of a GPP with only low levels of employer contribution
  43. 43. Next steps• Review Scheme rules for occupational schemes• Review contribution structures for all schemes• Review employee groups• Can objective justification be used for continue certain existing practices?• Review benefit design
  44. 44. Next steps• Full analysis of options• Clear indication of risks in those options• Holistic approach to employee benefits design issuesYou will still have to decide which options to take• Project manage solutions adopted• Communications to employees
  45. 45. Questions?
  46. 46. Regulatory Statement• Bluefin is a trading name of Bluefin Corporate Consulting Limited. Registered Office: 5 Old Broad Street London EC2N 1AD. Registered in England No: 1860772.• Bluefin Corporate Consulting Limited is authorised and regulated by the Financial Services Authority.• The information contained within this presentation does not constitute independent financial advice.• The information contained in this presentation is based on our understanding of current law and taxation.• HMRC policy, practice, and legislation may change in the future.
  47. 47. Thank you
  48. 48. Flexible Retirement and PensionProvisionJohn Hamilton - Blake Lapthorn27 September 2011
  49. 49. Overview of session “A major advantage of the reform of pensions taxation will be flexible retirement” Simplifying the taxation of pensions: increasing choice and flexibility for all – HMRC – December 2005 To what extent does the new legislation achieve this objective? What are the main pitfalls for employers? Do you have any choice to offer flexible retirement? What are employers doing?
  50. 50. What do we mean by flexible retirement? Narrow sense – Essentially, more flexibility over late retirement options Drawing benefits at 65 whilst continuing to work Drawing benefits at 65 whilst continuing to accrue Not drawing benefits at 65 but continuing to accrue Wide sense – Drawing benefits in different stages at any permitted age whilst continuing to accrue
  51. 51. Why is flexible retirement an issue for an olderworkforce? Abolition of default retirement age. Increased life expectancy. Changing lifestyles. Moving away from the ‘one-size fits’ all form of benefit design.
  52. 52. Legal structure – Employer provides a contractbased scheme Insurance Company PRIMARY CONTRACT (to provide a pension) Employer Employee SECONDARY CONTRACT (to contribute)
  53. 53. Legal structure – Employer participates in anoccupational pension scheme Trustees TRUST Employer sponsor (governed by deed and rules) Members
  54. 54. What are the main legal barriers to flexibleretirement? Scheme Rules (occupational pension scheme) or policy provisions (contract-based arrangement) – do rules still require a member to leave service before benefits come into payment? – do rules allow for continued accrual beyond the Scheme NRD? – Is there any provision at all for a wider form of flexible retirement? HMRC requirements – ‘Normal minimum pension age’ – outside of ill-health, member must be aged 55 to draw a pension.
  55. 55. What are the legal barriers to flexible retirement? Friction still remains between HMRC and DWP requirements relating to occupational pension schemes: Preservation – eg late payment of deferred pension and employment requirement Revaluation – position of pension already in payment when pensionable service ends Transfers - effect of cash equivalent legislation when member draws benefits in tranches
  56. 56. What are the implications for the employer? –general considerations Practical implications will depend on the type of pension scheme. Should you be embracing flexible retirement as a tool of workforce management? Could members be financially disadvantaged by moving to flexible retirement? What are your duties as an employer to ensure that employees are not disadvantaged by their decisions? – Crossley v Faithful & Gould Holdings Limited [2004] – Scally v Southern Health and Social Services Board (1992)
  57. 57. What are the implications of narrow flexibleretirement for the employer? Effect of abolition of default retirement age Additional cost to fund the extra accrual Decisions over the options to be offered at age 65? – Immediate pension – Extra accrual – Deferred pension with actuarial uplift
  58. 58. What are the implications for the employer (wideflexible retirement)? Who should control the option? What restrictions should be placed on its exercise? eg: – Minimum proportion/amounts to be taken? – Should further tranches of pension be allowed? – Methodology of calculating the residual pension (DB Schemes) – What should remain vested and what should remain unvested (DC Schemes)? Administrative costs? Position of the trustees/insurance company Explaining all of this to your staff!
  59. 59. Must you provide narrow flexible retirement? Narrow flexible retirement – Probably – no exemption in age discrimination legislation for scheme provision that prevents accrual beyond 65 – Indirect age discrimination risk if rules impose a leaving service requirement before pension can come into payment – Objective justification likely to be difficult
  60. 60. What are employers doing at the moment? Money purchase schemes – Continued employer contributions beyond age 65 Defined benefit schemes – choice at 65 of: – Continued accrual – Immediate pension – Late retirement uplift Can you offer a money purchase alternative at age 65?
  61. 61. Must you provide wide flexible retirement? No requirement outside of age discrimination legislation. Could age discrimination be an issue? Original DTI Guidance suggested an indirect discrimination risk: “A rule which stops members who are already drawing a pension from continuing to accrue benefits may be indirectly discriminatory. For instance, if proportionately more 55 year old members than, say, 64 year old members would like to continue to work, accrue benefits and draw a pension, rather than having to make a choice between drawing a pension and accruing benefits, then the rule disadvantages 55 year olds compared with the 64 year olds and will be indirectly discriminatory, unless it can be objectively justified.”
  62. 62. Age discrimination risks in not providing wideflexible retirement? The issue was not addressed in the Government’s final guidance. How could age discrimination arise in practice? – Evidential difficulties – Test should be based on actual circumstances rather than potential interest – There can be no comparator if part payment of benefits is not allowed to any member at any age – Objective justification?
  63. 63. What are employers doing at the moment? In our experience, few private sector employers are allowing wide flexible retirement – those that are tend to be the very large occupational schemes. Lack of demand from employees? Lack of interest from employers? Concerns over costs? Concerns over unresolved legal issues? – particularly DB Schemes Consider introducing a permissive Power?
  64. 64. What should you be doing? - Formulating a FlexibleRetirement Strategy What is your HR strategy on flexible retirement – both wide and narrow? Does your strategy give rise to any age discrimination risks? Do you need the buy-in from of any third party before it can be implemented? Do you understand the costs of implementing your strategy? When and how do you communicate with employees?
  65. 65. What should you be checking? – Implementing yourstrategy What does the employment contract say? If an occupational pension scheme – check your rules: – Do they allow additional accrual beyond age 65? – Have they retained a leaving service requirement? – Do they allow for the possibility of wider flexible retirement? – Permissive power or detailed rule amendments? If a contract based scheme: – Check scope with the provider
  66. 66. Any questions?John 023 8085 7089
  67. 67. An Older workforce - the challenges andopportunities for employers Background and context What this means from an employment perspective? The impact and issues for different benefits Flexible retirement – a practical option? How well are you placed to meet this challenge?
  68. 68. The future – for individuals? Live for longer = work for longer Medical advances – amino acids More than one career/job + mid life gap years? No cliff edge retirement Integrated savings/debt repayments NEST/auto enrolment Auto escalation Is compulsory retirement savings inevitable? Tax incentives or just higher taxes? AffordabilityWE ARE LIVING LONGER, HEALTHIER LIVES
  69. 69. The future – for employers? Ageing workforce for UK plc ….. but what is your position? Skills v productivity Flexible recruitment – target different age groups? Different retention policies for different ages? Fewer people able to afford outright retirement Flexible retirement Flexible reward packages Review your pay and benefits package and your practices, procedures and performance criteria Employer facilitates access (and pays/funds)? Affordability (can you afford not to)?Effective HR becomes more importantMore people working is actually better for theeconomy
  70. 70. Question time