In June, ONS statistics revealed that the number of people working beyond state pension age had nearly doubled between 1993 and 2011 (Number working past state pension age nearly doubles). With the removal of the Default Retirement Age (DRA), and people seeing pension pots and annuity rates falling due to ongoing economic turmoil, this trend looks set to continue.
This is a significant issue for employers and pension trustees, who need to ensure that the benefits they offer are fit for purpose with a workforce that includes over-65s. We’ve already seen Corus Hotels bring legal proceedings against their employee benefits consultants in a case focusing on death in service benefits for an employee aged over 65, and some experts are predicting that other cases will follow.
So, what should employers be doing to ensure that they are not only up-to-date on what the law says, but that their practices are providing the best for the firm and for their staff?
Review employment contracts
First, employers need to review all their policies and contracts. The phasing out of the DRA was completed in October 2011, and yet there are still lots of companies who have not made any changes to their business practices, or even checked to see if changes are necessary.
While the new age discrimination laws make it clear that there are some benefits employers do not have to provide to workers aged over 65 (or the state retirement age), if an employee’s contract of employment promises them these benefits indefinitely then the firm could still be guilty of breach of contract if they stop providing them.
An additional complication is that employers who offer benefits up to an age higher than 65 (or the state retirement age), for instance promising life assurance to all employees up to 70 years of age in contracts of employment, could be guilty of age discrimination. We think this is unlikely, but much depends on the interpretation of the regulations and the industry is waiting for case law to determine this. In the meantime, employers need to ensure that they have taken legal advice and consulted with an employee benefits adviser over any contracts that may be open to interpretation.
Review all other resources
As well as checking contracts of employment, employers also need to review all other resources that staff might use to determine their entitlements. This should include staff handbooks, company guidelines, flexible benefits websites, pension communications and similar materials. Firms must be consistent in what they are promising employees in terms of benefits.
Employers also need to be careful about verbal deals made with potential or existing staff. If an employee is told that they can expect benefits to be paid for as long as they are with the company, there is a legal case for this being required no matter what the legislation says.
To ensure that they are not opening themselves up to liabilities, there are two routes employers should consider. The first is to ensure that all references to benefits make it clear that these are bound by the terms of the company’s insurance. The second option is to simply remove all specific details about benefits from contracts and other binding agreements, allowing flexibility within benefit packages.
In short, employers need to be sure that their insurance policy terms are reflected in the terms of their contracts of employment and other documents, otherwise they are opening themselves up to potentially huge liabilities.
Insured vs. self-insured
There is one further complication that must be considered by employers – that of insured vs. self-insured benefits. The legislation makes it clear that only insured benefits are exempt from age discrimination laws; if an employer is self-insuring benefits then they must be provided to all employees regardless of age.
Employers and trustees of self-insuring companies may want to consider moving towards insured benefits, especially those organisations with an ageing workforce. Insurance could bring down costs and reduce liabilities, and given the maturity of the market it may not be as expensive as some companies fear.
If employers decide to remain self-insuring, they must ensure that they are fully aware of the make-up of their workforce and the firm’s potential liabilities.
If companies do decide to change their benefits practices, contracts of employment or other communications, or insurance policies, they need to make sure that they consider the long-term implications. Some companies have already made changes to their benefits practices to ensure that they are complying with the law, but they haven’t necessarily checked that these are the best solution for their business. For instance, employers need to consider the impact of any changes they make to the recruitment and retention of talented staff.
As well as getting financial and legal advice, employers should also consider how they can engage employees in any changes that are going to be made, whether this is simply an update to the wording of contracts of employment to reflect insurance policy terms or an overhaul of all benefits on offer in a move to insured rather than self-insured status.
Although an overhaul can sound daunting, the introduction of auto enrolment provides employers with a useful platform from which to engage employees on these issues. Firms could consider a wider programme of staff engagement and consultation to determine what benefits are most appreciated by workers and how these can best be provided.
By communicating honestly and openly to staff and listening to feedback, employers can not only ensure that they are complying with the law, but also boost workforce morale and save themselves money.
Lee Gruskin is a Senior Consultant in the Health and Risk team at Capita’s employee benefits business, Bluefin Corporate Consulting. He has worked in the employee benefits industry for 15 years, and for the past three years has been at Bluefin where he advises HR Directors, Finance Directors and Pension Trustees on benefit design and funding solutions for health and risk benefits.