The DWP has begun a consultation on the effects of age discrimination on employers' flexible retirement policies.
It comes in response to an earlier DWP consultation, which suggested occupational schemes be allowed to either stop or reduce benefits for workers over the age of 65, or stop death-in-service benefits, to keep costs manageable for employers.
The DWP says its initial consultation found age discrimination laws, which require employers to provide the same benefits to all employees, regardless of age, were causing considerable unease among firms, trustees and pension advisers.
Currently, employers are permitted to retire workers at age 65, though they can agree to continue working beyond this age.
However, the Government says some employers were facing considerable additional costs when employing older workers.
If a firm had to pay pension contributions, or provide a standard death-in-service benefit, then they would face high costs relative to other workers, due to the age of the employee.
However, Andrew Tully, senior pensions policy manager at Standard Life, says the Government is unlikely to be able to circumvent Europe's rules on age discrimination.
"The UK government is suggesting that employers can stop providing pension and death benefits at age 65. But UK legislation is taken directly from a European directive," he says.
"This means that the European Court could potentially over rule any changes introduced."
Pension schemes already qualify from a number of exemptions to age discrimination rules, including minimum and maximum age of entry to a particular scheme, and maximum length of service calculations.
The Government and employers are hoping to use these exemption rules to avoid paying benefits for older workers, but Tully says they are unlikely to succeed.
"Other practices [for exemption] have to be 'objectively justified' by the employer or trustees - the cost of a particular benefit is not an allowable reason for an employer to not provide it," he explains.
"For example the cost of providing life cover to employees over 65 is significantly higher than for younger employees, but this reason alone is not sufficient reason for an employer not to provide that benefit to the over 65s."
The consultation will run until 10 March 2009, and responses should be sent to Angele Perera at the DWP.
Have your say:
"I see no logical reason for an employer NOT to continue paying pension income benefits past age 65 and death benefits as return of fund. I do however think that in the light of these issues, any benefit consultant reccomending a lump sum death in service payment to staff at present needs to be very wary. One solution may be for contracts to be written on an individual basis like Group Pensions so the employer pays the same premium for all members of staff irrespective of age and the insurer payout is simply relevent to mortality risk of age, this would require the contract of employment to reflect this, but it WOULD mean all staff were treated the same irrespective of age, healt or religion by the employer and it would simply be the insurer that was paying benefits based on risk. In addition I am surprised that with the Treasury announcing a consultation today with regard Islamic finance, the issues of compatability with different religions is not being considered NOW, rather than later!" Phil Castle, director, Financial EscapeIFAonline
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