We ask the experts for their answers … have your say online at the Employee Benefits forum.
Katherine Moxham is spokesperson for Group Risk Development
There is increasing consensus that the default retirement age review will recommend the complete removal of the default retirement age. But encouragement can be taken from the Government Equalities Office (GEO) policy statement for financial services announcing that: a tailored specific exemption will be drafted allowing age to be used where this is fair and reasonable; age bands that keep prices down for consumers as a whole will be permitted; and providers will be permitted to apply age limits on their products where relevant to risks or costs.
What remains to be seen is how this will actually affect employers in practice. Despite the GEO’s well-considered response for financial services, if employers cannot legally apply a cut-off age for non-pension benefits (irrespective of the removal of the default retirement age), products will be rendered prohibitively expensive for everyone, not just older employees.
We know the government understands this issue because entitlement to the employment and support allowance ceases when the state pension becomes payable. Shouldn’t employers be allowed to take the same practical approach with non-pension benefits, especially where these are not mandatory and where insured products are used to fund benefit promises?
To stabilise cost and treat all employees equally, Group Risk Development (Grid) suggests retaining an upper age for non-pension benefits (such as the state pension age), and giving benefits of equivalent value.
For those working beyond state pension age, this could take the form of increased salary, higher pension contributions or even contributions towards long-term care costs.
Mike Izzard is chief executive of the Association of Medical Insurance Intermediaries
What impact raising the default retirement age would have on non-pension-related benefits is a difficult one. What is clear is that if an employer is forced to increase this to, say, age 70, it will face a significant increase in cost because of the increased risk associated with age.
With the economy limping out of recession, this could be the final straw for many that were questioning the value of such benefits anyway. They may face the double whammy of risk insurers putting their rates back up post-recession and an increase due to terminal age. Let’s call this the ‘perfect storm’ for benefits. The result is more strain on the state at the time when the government is trying to reduce such reliance to cut the deficit.
The answer should be to allow employers to opt out of having to cover benefits beyond the current default age. If an employee wants the cover, they should fund it themselves and be underwritten to at least prove ongoing functional capacity for their role to avoid selection against the insurers on plans such as death-in-service and income protection cover.
Having a default age of 70 may encourage some people to stay on in employment in the knowledge they could claim and thus, in the event of income protection being in place, protect their pension pot.†
However the increased cost of offering income protection to older staff could kill the benefit for younger people who, in addition, have not had the chance to build up a pension.
Donna Miller is European HR director at Enterprise Rent-A-Car
Employers should not be anxious over such a ruling, but organisations should use the opportunity to look at the benefits they offer and ensure they remain relevant. That could mean taking steps to update human resource policies and practices so they are managed as effectively as possible from both the business and employee perspectives.
The ability of employees to stay in the workforce longer means employers must make sure they have the right appraisal and performance management systems in place. Ensuring benefits are suitable for an older workforce will be a key part of this.
Employers need to be prepared to have open discussions now with key benefits partners about the ability to offer the benefit to those over the age of 65.
From an employee engagement point of view, it is imperative that a wide and balanced range of benefits is on offer for all employees. For some companies this may develop into a flexible benefits solution; for others, it may be a more considered suite of benefits available to all.
A useful starting point is often employees themselves. Understanding what they value and how that changes over time is important, and using that feedback to recognise what fits with the evolving demographics of a workforce.
If employers do not do this, they run the risk of alienating parts of their workforce. Truly engaging people relies on a number of factors, but making sure benefits remain relevant and effective is a must.