Age discrimination legislation is likely to affect all organisations, so don’t just pick at the edges, as it’s an ideal chance to make sweeping changes, says Debbie Lovewell
Case studies: DSG International, Asda
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When the Rolling Stones rocked Brazil’s Copacabana Beach earlier this year, they proved that in an industry where success is all too often judged on youthful good looks and enthusiasm, sometimes there’s just no substitute for talent and experience. While the celebrity world may be far removed from real life, it just goes to show that age needn’t always be seen as a barrier – at either end of the age spectrum.
Unfortunately, for every success story there are countless tales of individuals who have been excluded from the workplace because of their age. This view hasn’t been helped by high-profile examples such as the chief executive of National Express, Phil White, who aged 56 is planning to retire by the end of the year because he describes running a company as “a young man’s” job.
Overcoming such discrimination is just one issue that the government has worked hard to change over the past few years. Along with disability and sex discrimination legislation, it has also looked to outlaw age discrimination particularly in the workplace.
But while this is undoubtedly a positive move, each new piece of legislation has meant a great deal of work for employers. Not least when it comes to employees’ benefits packages, which must comply with the new Employment Equality (Age) Regulations published last month before they come into effect on 1 October this year.
Sam Mercer, director of the Employer’s Forum on Age (EFA), explains: “Every organisation is going to be affected by these regulations. The amazing thing about age is it crops up in the most hard-to-find places. Employers are saying it could have more impact than sex discrimination [law]. Most organisations offer some insurance benefits and pensions, which are the key employee benefits [to be affected].”
Richard Wainer, senior policy adviser at the Confederation of British Industry (CBI), adds that the Age Discrimination Act is one of the biggest changes to employment issues in recent years. “It’s going to be a lot of work for employers if they have any doubt their practices are going to fall foul of the law.”
Insurance benefits are likely to be among the hardest hit, particularly when it comes to healthcare perks such as private medical insurance (PMI). From October, employers will no longer be able to use cost as a justification for not providing a benefit to all sections of their workforce. This could potentially increase benefits spend considerably for organisations with older employees as premiums rise. Dudley Lusted, head of healthcare development at Axa PPP Healthcare, explains: “It is evident that the older [a person] gets from a healthcare perspective, the more likely they are to claim.”
The bill is set to get even larger as increasing numbers of employers choose to remain in employment past the traditional retirement age of 65 years. Organisations are now obliged to consider all such requests from staff.
So working out how to extend cover to all employees without increasing benefits spend will be a key issue for employers. Where staff are used to receiving a benefit as part of their core terms and conditions, simply removing it from the package is not likely to be a viable option. Employers looking to introduce new schemes, however, may well decide to look for cheaper alternatives.
In many cases, Lusted believes employers could free up the necessary capital by reviewing how schemes are structured. Restricting cover to employees, for example, can help to cut costs in organisations that previously extended this to include spouses and families. If employers wish to continue to offer such extended benefits to staff, they can do so on a flexible or voluntary basis.
“They need to think beyond things that are seen mainly as employee benefits and claw back some things that are more for employers. So in possibly saving money there, they may want to open up another employer benefit somewhere else in the business,” he explains.
Changing the terms of a benefits scheme so that previously core options are offered through a flexible or voluntary benefits plan can also help to control costs for organisations. But even where perks are offered in this way, employers must still ensure that their terms are available to all employees regardless of age.
Mercer, however, questions if such actions are even necessary and suggests that employers may be able to keep existing schemes. “My instinct is that [employers] might be able to justify it if they can prove that [employees] are more likely to get certain illnesses over a certain age,” she says.
Income protection schemes are also likely to be affected. This will largely impact on organisations that have restricted cover to employees under a certain age, such as 55, which is below their nominated retirement age for workers. Altering the terms of these schemes to cover employees of all ages will significantly increase costs.
Bob Cheesewright, propositions manager for employee benefits at Friends Provident, believes that this may deter employers from offering the benefit. “There’s a very real chance that some organisations may deem it better to put in no scheme at all than one that is effectively a blank cheque,” he explains.
But he is quick to add that the majority of income protection schemes offered by employers already comply with the legislation so only a relatively small number will need modification. Those which do could be restructured so that they only pay out for a pre-determined period of time, for example, three, five or seven years.
The final regulations also clarify employers’ position on pension schemes. Here there are a number of areas which have been made specifically exempt from the regulations. Kevin Wesbroom, a principal consultant at Hewitt Associates, says: “It is a very positive piece of legislation as it doesn’t force employers to make changes to their scheme.” After the rigours of pensions simplification legislation, this is likely to be welcome news for organisations.
Both employer and employee contributions, for example, are still allowed to vary provided all members of the scheme are ultimately destined to receive equal benefits on reaching retirement age. This means that variations according to age, length of service or job grade are all possible. “The government has made it clear that [employers] can recognise that pensions cost more for an older person. Without that exemption, employers may close their defined benefit plan altogether and just put everyone equally into a defined contribution scheme. [The regulations are] very supportive and aren’t forcing employers to take a knee-jerk reaction,” explains Wesbroom.
Employers can also continue to set minimum and maximum age limits for admission to the scheme, as well as differentiating between different employee groups such as the general workforce and executives.
Unlike previous drafts of the legislation, which focused on occupational pension schemes, the final draft extends exemptions to cover group personal pension plans.
But Wesbroom adds that the public sector could face a challenge in complying with one area of the legislation. Members of the Local Government Pension Scheme whose age at retirement added to their length of service totals 85 years have so far been able to retire with full pension rights at the age of 60, rather than having to wait until they reach 65. This rule, however, is not exempt so will need to be addressed.
Despite the numerous exemptions, however, James Davies, joint head of employment law at Lewis Silkin, warns that organisations should not become complacent. “Employers shouldn’t assume their schemes will be compliant with age discrimination legislation and should examine them in great detail.”
Before the final draft of the regulations was published, there were concerns that the legislation could mean the end of employers being able to provide benefits linked to length of service. These fears, however, are unfounded with the regulations containing several exemptions on this type of perk. Employers can provide benefits linked to service length as long as the qualifying period is five years or less of continuous service.
Beyond this length of time, organisations may still be able to offer service-related perks as long as they can provide a valid reason for doing so. How easy this is likely to be, however, is currently a matter of debate. EFA’s Mercer believes it is unlikely to be a problem for employers. “It’s going to be comparably easy to justify anything over five years so employers should be reassured by that.”
Accepted reasons are likely to include benefits being offered as a reward for employee loyalty or to encourage greater motivation among staff. This means that firms can continue to offer long service awards or set eligibility criteria on benefits such as sabbaticals or increased holiday entitlement according to an employee’s length of service. Quirkier benefits options may be harder to justify.
However, employers are affected, Mercer believes that the Age Discrimination Act provides an opportunity for employers to take stock of their reward policies. “It’s an opportunity for organisations to review their benefits and make sure the ones they offer are right for the business. If [employers] tinker around the edges, it’s a missed opportunity,” she explains.
But as ever, further changes could be on the agenda. Incoming goods and services regulations are thought likely to impact on sale of insurance products, so forcing employers to take yet another look at their offering.
The main exemptions from the Employment Equality (Age) Regulations include:
- Benefits that are linked to length of service where the qualifying period is five years or less of continuous service with an employer.
- Age-related pension contributions to both defined contribution and defined benefit schemes.
- Admission to pension schemes based on a minimum and maximum age, including different ages for different groups of employees.
- Pension schemes that are closed to new members.
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Case study: DSG International
Retail firm DSG International (DSGI) anticipates that age laws will have little impact on its existing benefits schemes.
The parent company of high street retailers Dixons, Currys, PC World and The Link offers all employees the opportunity to take up benefits options through its voluntary benefits package. Robin Cooper, head of employee relations, policy and reward, explains: “We’re reasonably confident that we won’t have to do much to ensure that we’re legally compliant. Most of our benefits are optional to all staff regardless of age.” He adds that the firm will only need to make minor amendments to options such as holiday entitlement so that they are based on service rather than age criteria.
Ensuring that the company complies with the legislation has become more of an issue for DSGI as the age profile of its workforce has changed. “In terms of the age of our workforce, there is a tendency for staff to be at the younger end. Over the last five years, the average age of the workforce has increased by five years. We’re always sympathetic to people who have requested to stay on past the retirement age. Our view is that where they want to do that, we’re keen to retain that talent and experience.”
Case study: Asda
Asda is currently reviewing its employment policies to ensure that all comply with the terms of the Employment Equality (Age) Regulations.
The food retailer, which has been appointed an Age Positive Employer Champion for its work tackling age discrimination, has set up an age action group with representatives from all areas across the business including pay, reward, and training and development.
Annette Casey, colleague relations manager, explains that it is currently awaiting guidance from conciliation body Acas on how to best approach its service-related benefits. “The main ones are going to be around sick pay and holiday. [For example] when someone gets to 25 years’ service with us they get an extra week’s holiday in that anniversary year.”
Also likely to be affected are perks which were introduced in response to ageing workforce demographics. Asda’s Benidorm Leave, for example, is a period of unpaid extended leave, which employees over the age of 50 can take between January and March each year. “I don’t believe we can retain that as it stands because it could be seen as discriminatory. We’ll probably have to open it up,” says Casey. But she is keen to add that age isn’t just about concentrating on the over-50s but looking at terms and conditions for employees of all ages.
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