By 1 October, all UK employers must be compliant with current age discrimination regulations. Jim O'Driscoll explains why this is the perfect time to get in line with some expert advice
Benjamin Franklin once said that there are only two certainties in life, death and taxes. There is now a third 'certainty' that can be said to join these: directives. Directives from Brussels have been a regular feature in recent years, and each one brings added responsibility and expense to society - and to the business community in particular.
The Government has specified that by 1 October, employers must ensure that their business practices are compliant with the Employment Equality (Age) Regulations 2006.
These regulations implement the terms of the age strand of the European Employment Directive (Council Directive 2000/78/EC) established in November 2000. As a result, unjustified direct and indirect discrimination, harassment and victimisation on the grounds of age will be unlawful in employment and vocational training in the UK.
So to whom will the regulations apply? It will affect employers, trustees and managers of occupational pension schemes, private and public sector vocational training providers and trade unions. Professional organisations and employer organisations will also have to abide by these rules.
The regulations will cover recruitment, terms and conditions of employment, promotions and training. In addition, they will also cover transfers and dismissals.
Employers, therefore, must review their employment policies and practices, including retirement age, recruitment procedures, and pay and benefit structures. It should be noted, however, that there are several circumstances when discrimination on the grounds of age will not infringe the regulations.
There are three key exemptions. The first exemption is where there is an objective justification for treating a person differently. The objective justification test will not be easy to demonstrate and different treatment on the grounds of age will only be possible for exceptional reasons. Discrimination on age grounds will only be justified if it is a proportionate means of achieving a legitimate aim.
The second exemption involves situations where an individual is older than, or within six months of, the employer's normal retirement age or the age of 65 if the employer does not have one. In these circumstances, there is a specific exemption allowing employers to refuse to recruit that person.
Third, an exemption will be granted where there is a genuine occupational requirement that requires a person to be a certain age.
The provision of goods and services including insurance is not covered by the new regulations. However, with employers reviewing their employee benefits packages, forward thinking providers will respond. One of the knock-on effects of this could be the stimulation of the group income protection (IP) market.
It is important to remember that group IP exists as a vehicle for employers to insure liability is taken on when they elect to provide a continuing income to staff who have the misfortune to suffer from an illness that prevents them from working.
The potential costs of employers providing continuing support in this way can be expensive, especially when the member of staff is relatively young and the liability could last until age 65.
The main question is whether an employer operating its sick pay scheme with an expiry age lower than 65 can continue to do so and avoid accusations of operating in a discriminatory manner.
One view is that employers could continue to operate with the lower age and terminate the employment of sick employees once they reach the age of 60. The termination of employment would be on the grounds of an individual's poor health rendering them incapable of performing their job.
It is likely, however, that employers would need to ensure that no changes could be made to the job - or the working environment - that would assist a return to work, in order to comply with the requirements of the Disability Discrimination Act 2005.
Employers could face action for unfair dismissal in such circumstances. Until this scenario is tested, it is not possible to be certain of the outcome.
This raises a dilemma for employers and there are indications that many could elect to move the expiry date of their sick pay schemes to the age of 65, on the basis that the regulations allow the employer to terminate employment on this date without the need for justification.
This was the suggestion made to Group Risk Development (GRiD), a lobby group consisting of insurers, reinsurers and intermediaries that undertake UK group risk business, during discussions with employment lawyers.
Any change to the retirement age will, of course, mean an extension of an employer's period of liability to pay sick pay. Employers need to decide whether to extend their group IP cover or to self-insure such a period.
Insurers are considering their positions in response to the impact of the regulations, however, it is clear that obtaining cover to the age of 65 should not pose a problem.
GRiD has indicated that extending the expiry age for a group IP scheme from age 60 to 65 will cost approximately 25% extra for a group with an average age of 51. If the expiry age for the same group is extended to 70, GRiD believes that the additional cost is likely to be in the region of 40%.
In the near future, it is probably unrealistic to expect that employers will shift their retirement age to 70, bearing in mind the freedom of action at 65 and the fact that the state pension age is 65 for men. Additionally, the state pension age for women is already on a set course leading to 65 for all in 2020.
There must be a high element of doubt that the state will try to interfere with this programme in the next few years, as the age 65 default for retirement is scheduled for review in 2011. This inevitably leads to the conclusion that employers will chose age 65 for all benefit purposes.
Employers must take action, if they have not already, to review their expiry ages and discuss any proposed changes to benefit schemes with their insurers if they wish to maintain full insurance cover.
It is worth considering if the new regulations will result in employers moving away from group IP. This is unlikely when the place of sick pay provision in the employee benefits package is considered.
Many employers keep this benefit in place because of its perceived value and high awareness among staff, particularly where a colleague has suffered from a long-term illness and received benefits under such an arrangement. It may also be difficult to recruit staff into an organisation that does not have a sick pay scheme, especially where their existing employer does.
In fact, the group IP market could see an expansion in terms of the number of schemes as employers that currently self-insure their sick pay arrangements turn to insurance to mitigate the impact of their increased exposure to longer-term liabilities.
Employers that choose to take this route will also benefit from access to a claims management service, whereby specialist case managers work together with rehabilitation consultants and employers to support recovery and return to work opportunities. Additional services, such as an absence management programme, may also be available.
It is expected that the manner in which the Government has implemented the age discrimination requirements of the EU directive will cause debate.
Isolating retirement for the purpose of allowing a default age only serves to confuse, as the default does not apply to other employee benefits. The non-alignment of the situation with goods and services, and in particular insurance, further adds to the challenges presented.
In time, it is expected that goods and services will be covered but may be accompanied by additional exemptions. Therefore, there is urgent need to act on the regulations that have become law.
It is vital that intermediaries advising on employee benefits are up to date on the potential impact of the regulations. At a minimum, all employers must review their employment policies and practices to ensure that they are compliant, and advisers can assist by ensuring that the subject is not overlooked.
Given that advisers will have already addressed the issues in relation to their own business, they will be well placed to talk to clients.
Canada Life has estimated that approximately 30% of its group IP portfolio has an expiry age lower than 65. If the rest of the industry mirrors these figures, employers will need to take action.
As such, there are significant opportunities being presented to advisers for discussion with clients.
Jim O'Driscoll is scheme underwriting director at Canada Life
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