Kudos reminds employers of the need to review pension scheme before 1 December 2006

The Age Regulations (Employment Equality (Age) Regulations 2006) which came into force on 1 October 2006 will have far reaching effects. The regulations, which cover people of all ages, apply to both employment and vocational training. Aberdeen based firm, Kudos Independent Financial Services (Kudos) is reminding employers that as the Age Regulations make it illegal to discriminate on the basis of age pension schemes need to be reviewed and any changes which are necessary to comply with the legislation should be made before 1 December 2006. Employers should have already reviewed their group risk schemes as the legislation applied to this type of benefit with effect from 1 October 2006.

ìGroup employee benefits such as death in service or income protection should already have been reviewed to ensure that they do not contravene the Age Regulations. With regard to pension schemes employers have a little longer, until 1 December 2006, to ensure that their schemes comply with the new legislation,î clarifies Alan Fergusson, director of employee benefits at Kudos. ìWe are offering employers a no obligation review of their pension schemes to ensure that they are not contravening the Age Regulations (Employment Equality (Age) Regulations 2006).î

Alan says, ìDemographic statistics show that the UK has an ageing population. There are currently more 55 ñ 64 year olds than 16 ñ 24 year olds and the largest group in the labour market is those aged 45 ñ 59. The Age Regulations represent a major change in employment law and just as it is illegal to discriminate on the grounds of gender, race or sexuality as of 1 October 2006 it is illegal to discriminate on the basis of age. Employers should not underestimate the impact that the Age Regulations will have on their business.î

The new legislation introduces a default retirement age of 65. This means that all employees will have the right to continue working until they are 65 unless their employer can objectively justify a lower retirement age. In addition employers will be obliged to seriously consider any requests they receive where employees wish to work beyond the compulsory retirement age.

According to Alan the impact of the Age Regulations on pension schemes will be determined by the type of pension scheme that is in place. He explains, ìOccupational pension schemes such as a final salary or money purchase arrangement are exempt from many of the rules within the Act. This includes eligibility requirements such as minimum and maximum ages. A qualifying period of employment and age bands are still allowed.

ìHowever, ceasing accrual within a defined benefit scheme at a certain age is not allowed, so if an employee is working on beyond age 65, then employers need to be aware that accrual can and must continue.î

The other main types of pension schemes are Group Personal Pensions or stakeholder type schemes. ìWith these types of schemes it is very easy to amend the normal retirement date to age 65 from an earlier age, and this does not affect the employee in any way, as they always have the choice to take the benefits from the plan at any time. Obviously, it will affect the projections that they receive, making them higher due to the longer period. Employers should make sure that this is communicated to employees in the correct way.î

It is highly improbable but not impossible for these types of pension schemes to fall foul of the new legislation. ìSome employers have age related bandings of contributions providing say 5% contribution of salary to a 40 year old, but 7% to a 50 year old. This can be objectively justified if the intention is to equalise benefits, but a review of the scheme should be carried out in order to assess the risk and ensure that the employer has done the relevant checks to ensure compliance.î

Alan continues, ìAnother example may be where there is a grading of contribution based on service, and that this goes beyond a five year period which has been mentioned in the legislation. Employers should be aware that this may need amendment or at least discussion.î

ìEven though employers have slightly longer to review their pension schemes to ensure that they do not contravene the Age Regulations it is important that they review their pension arrangements and take any necessary action prior to 1 December 2006.î

Kudos specialises in employee benefit due diligence and is one of the largest group pension providers in Scotland. More about Kudos can be found at www.kifs.co.uk or by calling the Aberdeen office on 01224 652100.