When I’m 65

With both sides squaring up over the default retirement age consultation it is essential the insurance industry gets its message across, says Edmund Tirbutt

The Coalition government’s announcement this July that it will be phasing out the default retirement age on April 6th 2011 (with a transitional period lasting until October 1st 2011) has met with mixed responses within both the HR and insurance sectors. But it is amongst insurers that opinion is most polarised.

One school of thought, as communicated by the likes of the Institute of Directors (IoD) and Confederation of British Industry (CBI), laments the removal of a mechanism that gives employers flexibility in managing their workforces, arguing such a perspective is incompatible with the Government’s stated desire to boost enterprise and deregulate the employment arena.

Instead of having a structure they are familiar with, employers will be faced with a great deal of uncertainty. Under current rules they don’t actually have to agree to employees working past 65, but manpower planning could become difficult once it starts being unclear when retirement is likely to take place. There is also a risk of litigation if line managers who broach the subject of retirement are construed as suggesting that an employee should be leaving.

Neil Carberry, head of employment policy at the CBI, says: “It takes a year to fire someone and if people want to continue work and their performance starts to dip they will face a fairly harrowing performance procedure and could be put through a year of being asked to up their game when they don’t have the ability to do so. If people are still flying at 65 there is no issue but if performance is suffering it could lead to unpleasantness and possibly even litigation. This could create ill-will and be tough for line managers who have worked with individuals for years.

“Our message is that employers need another framework and we will be looking for a package of things, including help for companies through compromise agreements when performance is failing. A lot of large companies use these already but many smaller ones don’t know about them.

We also feel some kind of safe harbour is needed for having discussions in a way that doesn’t lead to litigation, and we think the period before implementation is too short. Phasing it out in steps lasting between 18 months and two years would be more in line with standard business practice.

“Employers generally are very worried about how things are going to shape up,” continues Carberry. “The consultation document says we might need a Code of Practice but this will be too weak, and we want a commitment to genuine legislative change to introduce a new framework before the old one is abolished. “

Expectations about work are changing a lot as people are increasingly wanting to work beyond retirement because their pensions are not worth much and there is a growing recognition that work is enjoyable

The sentiments expressed by the Chartered Institute of Personnel and Development (CIPD) could hardly be more different. It did not support the implementation of the default retirement age in 2006 and is not shedding any tears about its abolition. It feels that the default retirement age creates a barrier to opportunities for selection, promotion, training and job mobility for people in their late 50s and early 60s and influences employer decisions about personal development and opportunities for mature employees.

Dianah Worman, diversity adviser at the CIPD, says: “We support the abolition because we need to change perceptions and aspirations about the length of working life and stop people thinking they have to leave work at a certain age. We feel people need more choice about how long to work for, and expectations about work are changing a lot as people are increasingly wanting to work beyond retirement because their pensions are not worth much and there is a growing recognition that work is enjoyable.”

The CIPD feels that if businesses manage and communicate properly they should be able to handle not having a retirement age, and that it should be possible to manage out employees who are not adding value. It argues that employers don’t really need a new structure because existing procedures already allow them to manage appropriately, and if they don’t want to give employees nasty surprises they should make sure that they have appropriate appraisal procedures, good performance management systems and good communication. After all, a significant number of businesses are already functioning successfully without a maximum retirement age.

“People should be trained in how to have conversations that avoid litigation” continues Worman. “No organisation can ever guarantee things won’t go wrong but, on the whole, when they get caught short it is because they need to pull their socks up. Some employers are ready for the change but others are not, and those that aren’t ready should get their act together and seek guidance from the government and from organisations like ourselves.”

In the insurance sector the debate is not so much about whether there should be a new structure to replace the default retirement age but whether the insurance industry will actually get one. It is generally agreed that the costs of providing cover to very old employees would be so steep that some sort of exemption via which insurers can legally cease to provide cover at a certain age is essential. Industry body Group Risk Development (Grid) feels that this should logically coincide with the State pension age.

Grid spokesperson Katharine Moxham is greatly encouraged by the fact that the consultation document has a specific section entitled ’Unintended Consequences’, which asks for opinions on the need for an exemption.

The consultation document says we might need a Code of Practice but this will be too weak, and we want a commitment to genuine legislative change to introduce a new framework before the old one is abolished

She says: “The way the document is worded suggests that they realise the need for a suitable exemption for group risk. So we are still very confident of obtaining one but we need to see it in black and white. We are campaigning actively but the more individuals and organisations that respond to the consultation saying that we need an exemption the more likely it is to happen.”

Nevertheless, some corners of town are not so optimistic. Jamie Barnes, senior director at national employee benefit consultants Enrich, is amongst those who think that insurers will not get an exemption despite the efforts of Grid, the Association of British Insurers and the Investment and Life Assurance Group in lobbying so hard to obtain one.

He says: “It would be too big a departure from the age discrimination legislation and I don’t think those making the decisions understand the implications on things like insurance. So it could be a very major issue for the market but it should benefit intermediaries by throwing up greater consultancy opportunities.”

Caroline Shepherd, corporate accounts manager at Jelf Employee Benefits, does not think that failure to get an exemption would make much of a difference product-wise as there are products out there like limited term income protection to suit the changes. Nevertheless, she warns of the potential impact on overall premiums paid, which will make the challenge to actually grow the market even greater.

John Ritchie, chief executive of Ellipse, feels that failure to get an exemption would lead to an industry with a different shape that is much more flex orientated. There would still be economies of scale and efficiencies of delivery but group risk would look more like a blend of group pricing and underwriting techniques and individual product structures. But even if – as he suspects is likely – group risk does come to enjoy a suitable exemption, he points out that the whole retirement age issue is just another driver for a fundamental review of employee benefit provision.

He says “We are already insuring people beyond 65 for life but I think there will be a lower core of employer-paid cover for all group risk products with top-ups by employees facilitated by employers. This trend is definitely happening in pensions and other areas.”

MAKE SURE YOU HAVE YOUR SAY

The Government would welcome further input on the insurance issues it highlights below in section 7.4 of the consultation paper entitled “Unintended Consequences.”

7.4.2. During the call for evidence, a number of stakeholders highlighted the interrelation between insured benefits and age. Their primary concern is that the removal of the default retirement age could impact negatively on the current and future provision of group insured benefits: life assurance; medical cover: income protection schemes and critical illness cover.

7.4.3. With the introduction of the Age Regulations in 2006, employers had to address any benefits not provided equally to all ages. Historically, many employers have and continue to place age limits or age-related conditions on entitlement to insured benefit schemes. These are largely determined by providers’ requirements for medical underwriting beyond a particular age or through the charging of higher premiums to insure older workers.

7.4.4 Employers remain uncertain as to the extent that imposing such limits on benefits for their employees remains lawful. Although the Equality Act partly addresses these issues, it was suggested that thought be given to extending the exceptions within the Age Regulations to clarify when employers could stop cover, require medical underwriting or pass the cost on to the employee.

Replies can be made online at www.surveymonkey.com/s/2VWVDND