Insured benefits will be exempted from default retirement age legislation, removing the risk that employers would ditch benefits that exposed them to open-ended liabilities, the Government has confirmed.
Group risk professionals are celebrating the removal of five years of uncertainty over whether insured workplace benefits would be subject to the new age discrimination legislation confirmed by the Government today.
The Government has announced that it is proceeding with its plan to phase out the default retirement age between 6 April and 1 October 2011. The change means that from 6 April 2011, employers will not be able to issue any notifications for compulsory retirement using the DRA procedure.
Between 6 April and 1 October, only people who were notified before 6 April, and whose retirement date is before 1 October can be compulsorily retired using the DRA. After 1 October, employers will not be able to use the DRA to compulsorily retire employees.
Although the Government is removing the DRA, it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it. Examples could include air traffic controllers and police officers.
But the Government is introducing an exception to the principle of equal treatment on the grounds of age for group risk insured benefits provided by employers, recognising the risk that employers might have ceased to offer insured benefits as a consequence of the removal of the DRA. Industry professionals had predicted potentially savage cuts in the coverage of benefits if the exemption had not been granted.
The Government’s consultation response says submissions against an exemption argued that demographic changes demand that the insurance industry be more innovative and make better use of medical underwriting and actuarial data when assessing risk.
A smaller number of respondents were concerned that abolition of the DRA would lead to uncertainty, making it harder for companies to decide whether particular individuals should be treated as “good” or “bad” leavers. Some concerns were also raised about defining normal retirement ages in occupational pension schemes.
But the Government has accepted that it is in the wider interest that these benefits continue and that spreading of risk allows cover to be provided to individuals who might otherwise be unable to obtain cover or only get cover on unfavourable terms.
The exemption will permit benefits to be withdrawn at State Pension Age.
Ron Wheatcroft, senior technical manager at Swiss Re says: “This has removed five years of uncertainty from the group risk market. We got everything that we wanted although we still need to see the draft regulations for the detail. It is great we have an objective benchmark because in the form of an exemption rather than just guidance, as some employers had been worried they would still have needed to consult their lawyers.”
Katharine Moxham, spokesperson for Grid, says: “Although employers may have to make small changes, they will not be left facing a blank cheque and will be able to retain these socially useful benefits.”
Steve Bridger, head of group risk, Aviva UK Health says: “We believe that the Government’s recognition of the value and importance of group risk will create opportunities to expand this market