EBS

From April 2011 it will no longer be lawful to enforce retirement at age 65. The transition is due to begin in April 2011 (less than 5 months away) and be fully implemented by 1st October 2011.

So what might this mean for your business?

• HR policy may need to be updated and communicated
• Most pension schemes should be able to cope with this change already but it’s always worth double-checking.
• Other employee benefits could be more challenging to adapt (Life assurance, Income Protection, Critical Illness and Private Medical Insurance). These can be cost-prohibitive and also difficult to source, although cost alone has not yet been considered sufficient defence against charges of age discrimination.

What options might you consider?

• Consider closing schemes to all new entrants – an extreme reaction and one which the Government & the insurance industry would be keen to avoid – employee benefits currently provide 40% of the UK’s total life assurance benefits & 70% of its income protection.
• Allign benefits to cease when the individual becomes eligible for State Pension. This may well prove to be popular – EBS can provide guidance on the latest consultation regarding State Pension entitlement changes.
• Develop a flexible retirement strategy offering reduced benefits in conjunction with a phased retirement.
• Consider other methods of capturing cost-savings within employee benefits to offset the increased cost likely from this legislative proposal. Changes can be introduced for existing members or new joiners.

The proposals are already meeting resistance – with the CBI requesting a twelve month deferral citing  the short timespan for implementation as unworkable. 

Some test cases have also seen employers justify that retirement has to be enforced to create opportunities for the career development of others – this has mainly been successful for senior employees but may provide an opportunity to link the default retirement age to the role.

EBS will be monitoring the progress of the legislation and developments within the risk benefits market, producing regular updates.

To discuss how your employee benefits might need to adapt to encompass these proposals contact EBS.

The DWP has now published its latest proposals to Pensions Reform covering the issues of auto-enrolment and compulsory pension contributions for employers and employees to be phased in from 2012.

This follows the Coalition Governments review of the previous proposals. The Coalition restated its commitment to Pensions Reform as part of the Strategic Spending review. EBS has updated its NestQUICK guide but a summary of the latest recommendations is also provided below:

• The earnings threshold has been increased to the income tax personal allowance (£7,475 in 2011) though the threshold on which contributions are payable will be the National Insurance primary threshold (currently £5,715).  The previous threshold had been set at £5,035.
• The point at which employees must be enrolled has been extended to 3 months from 30 days though employees may opt-in earlier and receive an employer contribution.
• There is no change to the qualifying employee age band (22-pension age) though younger employees may join voluntarily and receive an employer pension contribution.
• All employers must participate (no small company exemption).

These changes will clearly have huge implications for most businesses and whilst still some time away, planning should start now. For further details or to discuss the impact on your firm please get in touch.

The Government announced plans yesterday to effectively reduce the value of millions of pensions in payment by linking them to the Consumer Prices Index (CPI)  rather than the Retail Prices Index (RPI). So what does this mean and who will it affect?

Whilst much of the reporting has used the terminology ‘private pensions’ the announcement has no impact on individual or group  stakeholder or personal pensions (collectively known as ‘defined contribution’ or ‘moneypurchase schemes’). Members of these schemes will continue to choose the level of increase (if any) appropriate to them at retirement.

The change, proposed by Pensions Minister Steve Webb, would reduce payments from the following arrangements: state pensions, final salary or ‘defined benefit’ schemes and public sector schemes.

The announcement was welcomed by companies still operating final salary schemes as the smaller increases on pensions in payment could reduce the liabilities they face – although a technical quirk suggests that this may not be the case: many schemes match future liabilities in the gilt market and gilts currently match RPI and are not set up to offer a CPI increase and so may not be able to provide any saving to scheme trustees.

EBS’ MD, Joe Walsh, will shortly be  attending a function in Westminster ‘Pensions in a new Parliament’  at which Pensions Minister, Steve Webb is guest speaker – we will keep you informed of any developments via the website.

If any of your employees raise questions regarding these changes please feel to refer them to our website or your usual EBS Consultant.