1. An older workforce -
The opportunities and the
challenges for employers
27 September 2011
Blake Lapthorn
New Kings Court
Chandler’s Ford

2. An older workforce - the challenges and
opportunities for employers
Background and context
What this means from an employment perspective?
The impact and issues for different benefits
Flexible retirement – a practical option?
How well are you placed to meet this challenge?

3. An older workforce?
‘… they are reliable, they are … they will get up in the morning and they
will turn in and you know they have got wisdom, you know, they are
wise and they are easier to manage.’ small low-flexibility employer,
transport, storage and communication
‘It is about life skills and ability to handle customers. And I’m generalising
a little bit here, but generally older people can handle those sort of
complaining customers and have a bit more of an understanding about
what people expect as a customer.’ large high-flexibility employer,
wholesale, retail and hospitality‘
There is no doubt that it isn’t just a cliché. The youngsters come in and
they’ll get straight into the computer screens and start driving the plant
about whereas the guys in the mill, they will sit in the control room and
be oblivious to the fact that something has blocked up.’ - medium sized,
medium-flexibility employer,
manufacturing and construction
If I train somebody at 60 I am only guaranteed three years because I don’t
know whether they are going to pass the medical.’ - medium-sized, high-
flexibility employer, Transport, storage and communication
Institute of Employment studies - 2009

4. An older workforce?
“ Other employers acknowledged that there was more serious or
chronic illness among the older workforce, but that this was
balanced by lower short term absence, and was an issue that
could be managed effectively, in the same way as maternity and
parental leave is dealt with for those of childbearing age. There
was a sense of both pragmatic trade offs and issues of equity
and social justice in how some employers thought about the
varying health and care needs of different age groups.”
“ Much has been written about the discriminatory potential
inherent in large rises in insurance covers for older workers,
which may have a disincentive effect on employers. Few of the
employers in our case studies had experienced this as an issue,
but for those which had, it was quite a significant factor,
although none admitted that it had a direct influence on their
recruitment practices”
Institute of Employment studies - 2009

7. The (distant?) future of retirement

8. Life expectancy rises by 44 days in just one year

10. Most of Europe is worse than this!!!!

13. Removal of the
Default Retirement Age (DRA)

14. The end of the Default Retirement Age (65)
The DRA was abolished on 6 April 2011 so
‘Retirement’ is no longer a ‘fair’ reason for dismissal.
Any dismissal because of age will now constitute
direct age discrimination (and an unfair dismissal)
under the Equality Act 2010 – apart from in rare
cases where it can be objectively justified.
If it can be objectively justified, the dismissal will fall
under SOSR.
As most employers accept that they cannot
objectively justify = emphasis now on correctly and
fairly managing performance/capability issues,
whatever the age of the employee.

15. Choices for employers
Either…..
A - Abandon fixed retirement ages altogether – any
dismissal must therefore fall under one of the other
five fair reasons for dismissal (eg capability); or
B – Retain a fixed retirement age – but if you do –
you must be able to objectively justify why you still
need one.

16. Cases: Objective Justification
Fact sensitive, but ultimately you must be able to
demonstrate….
1. Legitimate aim (or a real business need)
2. That fixed retirement age meets that need
3. That the retirement age meets that legitimate
aim/business need in a proportionate way
Look to case law on retirement of non-employees for
guidance on how the Tribunal/Courts deal with such
issues….

17. Cases on objective justification
Where retirement age was justified:
– Seldon v Clarkson Wright 2010 - Partners in law firm to
retire at 65
– Rosenbladt, ECJ 2010 – German case - retirement
when the employee could claim a statutory pension,
age 65
Where retirement age was NOT justified:
– Baker v National Air Traffic Services – could not
demonstrate that performance declined with age
– Martin v Professional Game Match Officials
Trend that Tribunals and Courts will adopt a rigorous
approach and that more evidence will now be
required to justify fixed retirement age

18. Practical Advice – Managing Performance and
Capability
Informal management
– Noted
– Training
– Appraisals/reviews
– Clear objectives
Formal disciplinary procedure
– ACAS code and internal procedures
– Warnings
– Support/training
– Time to improve
– Advising if could lead to dismissal

19. Practical Advice – Workplace Discussions
Do: Don’t:
– Hold regular – Ask discriminatory
appraisals/reviews questions such as ‘why
for workforce don’t you retire to avoid an
planning – at least undignified sacking?’ or
annually indicate that older workers
– Discuss are blocking younger
employees’ future workers
plans – short, – Focus these discussions
medium, long-term only on certain age groups
– Provide training to – ask the same questions
management on of all employees
age discrimination

20. Practical Advice – Review of Documentation
Review ACAS guidance
Remove fixed retirement ages from contracts and
notify staff of the change to their contract
Revise retirement policy documentation – positively
stating you will not retire at a fixed age will guard
against claims
Tighten up your capability/performance management
policies

21. Pitfalls to watch out for
Inconsistent treatment
Discriminatory comments/approach
Nb. age discrimination applies to all ages
Managers reluctance to manage older employees

22. Case study - Retirement
Sprightly Limited want to retire Wendy, aged 65. They are
concerned she is not up to the job as the markets have
become so competitive and she has not been meeting her
targets. Plus, they don't feel she now fits the ambitious
team of managers they have recruited over the years.
However, they do not want to upset her and because of
this, they have turned 'a blind-eye' to some of her failings.
Sprightly have received an email from another employee
John, aged 34, which raises concerns over how the
directors criticised his performance in their last quarterly
meeting. He states 'other colleagues do not appear to be
treated the same'. Sprightly are not really concerned as it
was clear John had not met his targets and so, they state,
'what is he complaining about?'

23. Case study Retirement
1. What should/could Sprightly have done better, if
anything?
2. How should they deal with their concerns with
Wendy?
3. How should they deal with John’s concerns?

24. Any questions?
Alternatively, please contact me:
– Tim.Forer@bllaw.co.uk
– 023 8085 7432

25. Removal of the Default
Retirement Age – Impact on
Employee Benefit Design
David Hepplewhite
27 September 2011
Bluefin
1 Aldgate
London EC3N 1LP
t 020 7709 4863
f 020 7709 4501
www.bluefingroup.co.uk

26. Typical Employee Benefits
• Pension scheme (DB or DC)
• Private medical insurance
• Life assurance
• Long-term disability insurance
• Flexible benefits
What are the options?

27. Assessing risk
Safe
Low risk
Manageable risk
A significant gamble
Not lawful

28. The six step process
1. Establish what the treatment is
2. Make sure that there is a relevant comparator
3. Decide if there is any discrimination
4. If there is, see if there is an exemption which covers it
5. If there is not, consider objective justification
6. If this is also not possible, remove discriminatory
feature

29. Insurance related benefits

30. What solutions are potentially available?
1
• Show the employer’s treatment
Establish what the
treatment is does not concern the age related
premiums
2
Make sure that
there is a relevant
comparator

31. What solutions are potentially available?
3
Decide if there is
any discrimination
4
• Make use of risk benefits
Find an exemption
which covers it exemption introduced on
5 April 2011

32. Risk benefits
Useful exemptions
• Life assurance
Risk schemes – • Income protection and related financial services
benefits can cease
• Private medical, dental and sickness insurance
at 65
• Accident insurance
• Uninsured benefits
Not exempt
• Cover in non-employment based relationships
Age 65 limit to rise • SPA rising to age 66 by 2020 (or perhaps earlier)
when state pension • SPA rising to age 67 by 2036 (could be earlier)
age (SPA) rises • SPA rising to age 68 by 2046 (could be earlier)

33. Objective justification
Key questions
5 • What is my legitimate aim?
Consider objective • Is there a less discriminatory way
justification
to achieve that aim?
• Does the policy achieve that
legitimate aim?
• Is any discrimination outweighed
by the benefit?
• Do any features of the policy
contradict the purported legitimate
aim?

34. What solutions are potentially available?
• Justify with a legitimate aim of improving the
recruitment, retention and motivation of employees
• Show that the policy is a proportionate means of
meeting that aim
• Show that facilitating insurance, even with age
related premiums, is more beneficial to older
persons

35. What solutions are potentially available?
6 • Provide private medical as
Remove a core benefit with an equal cost
discriminatory
feature
• Provide cover outside of flexible
benefits scheme
• Adjust cover level and flexible benefits
allowance to manage costs

36. What solutions are potentially available? (cont’d)
• Provide private medical as a core benefit with an
equal cost
• Provide cover outside of flexible benefits scheme
• Adjust cover level and flexible benefits allowance
to manage costs

37. What are the pitfalls to be aware of?
• Have a proper process in making decisions
supported by advice
• Existing scheme documentation and employment
contracts can be an issue
• Think about the broader implications and situation
• Age to which insurance contracts are written

38. Pension related benefits

39. Depends on the type of workplace pension scheme
• Contract based Pension Schemes
• Group personal pensions (GPPs)
• Stakeholder pension schemes
• Occupational Pension Schemes
• Under trust (either employer specific or master trust)
• Trustees have to follow non-discrimination rule
• Defined benefit (DB) or money purchase benefits or hybrid
• Non-registered pension arrangements

40. Getting the terminology right
• Default retirement age does not equal normal
retirement age
• Target retirement age is still appropriate in contract-
based pensions and money purchase occupational
schemes

41. Assessing risk
Safe
Low risk
Manageable risk
A significant gamble
Not lawful

42. Contract-based schemes
Useful exemptions
• Minimum ages for contributions
• Different minimum ages for different groups of
Limited exemptions employees
• Age related contributions where the purpose is to
ensure benefits are equal
• Age related contributions where the purpose is to
ensure that benefits are more nearly equal across
age groups
• Differences in contribution rates based on different
levels of remuneration received
• Limitation on contributions based on a maximum salary
• Service related practices (but if more than five years it
must fulfil a business need)
• Equal levels of contributions regardless of age

43. Defined contribution schemes
• Age-related rates where the advice
and evidence supporting the different
rates is old (particularly pre-2006)
and not formally documented
A significant • Different age-related rates of
gamble contribution from historic
arrangements that have not been
reviewed or were only reviewed many
years ago

44. Defined contribution schemes
• A maximum age limit on employer
contributions without any objective
justification
Not lawful

45. Defined benefit schemes
• Our interpretation of where policies could lie on the
risk spectrum
• How the law will operate is still uncertain
• Refer to the Scheme rules

46. Defined benefit schemes
• Ceasing further accrual at age 65
and
• Offering membership of a money
purchase occupational scheme or group
A significant personal pension where the combined
gamble value of new contributions and actuarial
enhancement is roughly equivalent to
the average cost of new defined benefit
accrual

47. Defined benefit schemes
• No further accrual or enhancement of
past accrual for members who have
reached the normal pension age
while those below that age continue
to accrue benefits
Not lawful
• Switching employees after age 65 to
fixed term contracts and offering them
membership of a GPP with only low
levels of employer contribution

48. Next steps
• Review Scheme rules for occupational schemes
• Review contribution structures for all schemes
• Review employee groups
• Can objective justification be used for continue
certain existing practices?
• Review benefit design

49. Next steps
• Full analysis of options
• Clear indication of risks in those options
• Holistic approach to employee benefits design
issues
You will still have to decide which options to take
• Project manage solutions adopted
• Communications to employees

50. Questions?

51. Regulatory Statement
• Bluefin is a trading name of Bluefin Corporate Consulting Limited. Registered
Office: 5 Old Broad Street London EC2N 1AD. Registered in England No:
1860772.
• Bluefin Corporate Consulting Limited is authorised and regulated by the
Financial Services Authority.
• The information contained within this presentation does not constitute
independent financial advice.
• The information contained in this presentation is based on our understanding
of current law and taxation.
• HMRC policy, practice, and legislation may change in the future.

52. Thank you

53. Flexible Retirement and Pension
Provision
John Hamilton - Blake Lapthorn
27 September 2011

54. Overview of session
“A major advantage of the reform of pensions taxation will be
flexible retirement”
Simplifying the taxation of pensions: increasing choice and
flexibility for all – HMRC – December 2005
To what extent does the new legislation achieve this objective?
What are the main pitfalls for employers?
Do you have any choice to offer flexible retirement?
What are employers doing?

55. What do we mean by flexible retirement?
Narrow sense
– Essentially, more flexibility over late retirement options
Drawing benefits at 65 whilst continuing to work
Drawing benefits at 65 whilst continuing to accrue
Not drawing benefits at 65 but continuing to accrue
Wide sense
– Drawing benefits in different stages at any permitted
age whilst continuing to accrue

56. Why is flexible retirement an issue for an older
workforce?
Abolition of default retirement age.
Increased life expectancy.
Changing lifestyles.
Moving away from the ‘one-size fits’ all form of
benefit design.

57. Legal structure – Employer provides a contract
based scheme
Insurance Company
PRIMARY
CONTRACT
(to provide a
pension)
Employer Employee
SECONDARY
CONTRACT
(to contribute)

58. Legal structure – Employer participates in an
occupational pension scheme
Trustees
TRUST
Employer sponsor (governed by
deed and rules)
Members

59. What are the main legal barriers to flexible
retirement?
Scheme Rules (occupational pension scheme) or
policy provisions (contract-based arrangement)
– do rules still require a member to leave service before
benefits come into payment?
– do rules allow for continued accrual beyond the
Scheme NRD?
– Is there any provision at all for a wider form of flexible
retirement?
HMRC requirements
– ‘Normal minimum pension age’ – outside of ill-health,
member must be aged 55 to draw a pension.

60. What are the legal barriers to flexible retirement?
Friction still remains between HMRC and DWP requirements
relating to occupational pension schemes:
Preservation – eg late payment of deferred pension and
employment requirement
Revaluation – position of pension already in payment
when pensionable service ends
Transfers - effect of cash equivalent legislation when
member draws benefits in tranches

61. What are the implications for the employer? –
general considerations
Practical implications will depend on the type of pension
scheme.
Should you be embracing flexible retirement as a tool of
workforce management?
Could members be financially disadvantaged by moving to
flexible retirement?
What are your duties as an employer to ensure that employees
are not disadvantaged by their decisions?
– Crossley v Faithful & Gould Holdings Limited [2004]
– Scally v Southern Health and Social Services Board (1992)

62. What are the implications of narrow flexible
retirement for the employer?
Effect of abolition of default retirement age
Additional cost to fund the extra accrual
Decisions over the options to be offered at age 65?
– Immediate pension
– Extra accrual
– Deferred pension with actuarial uplift

63. What are the implications for the employer (wide
flexible retirement)?
Who should control the option?
What restrictions should be placed on its exercise? eg:
– Minimum proportion/amounts to be taken?
– Should further tranches of pension be allowed?
– Methodology of calculating the residual pension (DB
Schemes)
– What should remain vested and what should remain
unvested (DC Schemes)?
Administrative costs?
Position of the trustees/insurance company
Explaining all of this to your staff!

64. Must you provide narrow flexible retirement?
Narrow flexible retirement
– Probably – no exemption in age discrimination
legislation for scheme provision that prevents accrual
beyond 65
– Indirect age discrimination risk if rules impose a leaving
service requirement before pension can come into
payment
– Objective justification likely to be difficult

65. What are employers doing at the moment?
Money purchase schemes
– Continued employer contributions beyond age 65
Defined benefit schemes – choice at 65 of:
– Continued accrual
– Immediate pension
– Late retirement uplift
Can you offer a money purchase alternative at age
65?

66. Must you provide wide flexible retirement?
No requirement outside of age discrimination legislation. Could
age discrimination be an issue?
Original DTI Guidance suggested an indirect discrimination risk:
“A rule which stops members who are already drawing a pension from
continuing to accrue benefits may be indirectly discriminatory. For
instance, if proportionately more 55 year old members than, say, 64
year old members would like to continue to work, accrue benefits and
draw a pension, rather than having to make a choice between drawing
a pension and accruing benefits, then the rule disadvantages 55 year
olds compared with the 64 year olds and will be indirectly
discriminatory, unless it can be objectively justified.”

67. Age discrimination risks in not providing wide
flexible retirement?
The issue was not addressed in the Government’s
final guidance.
How could age discrimination arise in practice?
– Evidential difficulties
– Test should be based on actual circumstances rather
than potential interest
– There can be no comparator if part payment of benefits
is not allowed to any member at any age
– Objective justification?

68. What are employers doing at the moment?
In our experience, few private sector employers are
allowing wide flexible retirement – those that are
tend to be the very large occupational schemes.
Lack of demand from employees?
Lack of interest from employers?
Concerns over costs?
Concerns over unresolved legal
issues? – particularly DB Schemes
Consider introducing a permissive
Power?

69. What should you be doing? - Formulating a Flexible
Retirement Strategy
What is your HR strategy on flexible retirement – both
wide and narrow?
Does your strategy give rise to any age discrimination
risks?
Do you need the buy-in from of any third party before
it can be implemented?
Do you understand the costs of implementing your
strategy?
When and how do you communicate with
employees?

70. What should you be checking? – Implementing your
strategy
What does the employment contract say?
If an occupational pension scheme – check your
rules:
– Do they allow additional accrual beyond age 65?
– Have they retained a leaving service requirement?
– Do they allow for the possibility of wider flexible
retirement?
– Permissive power or detailed rule amendments?
If a contract based scheme:
– Check scope with the provider

71. Any questions?
John Hamilton
Partner
John.Hamilton@bllaw.co.uk
Tel: 023 8085 7089

72. An Older workforce - the challenges and
opportunities for employers
Background and context
What this means from an employment perspective?
The impact and issues for different benefits
Flexible retirement – a practical option?
How well are you placed to meet this challenge?

74. The future
– for individuals?
Live for longer = work for longer
Medical advances – amino acids
More than one career/job + mid life gap years?
No cliff edge retirement
Integrated savings/debt repayments
NEST/auto enrolment
Auto escalation
Is compulsory retirement savings inevitable?
Tax incentives or just higher taxes?
Affordability
WE ARE LIVING LONGER, HEALTHIER LIVES

75. The future
– for employers?
Ageing workforce for UK plc ….. but what is your position?
Skills v productivity
Flexible recruitment – target different age groups?
Different retention policies for different ages?
Fewer people able to afford outright retirement
Flexible retirement Flexible reward packages
Review your pay and benefits package and your practices,
procedures and performance criteria
Employer facilitates access (and pays/funds)?
Affordability (can you afford not to)?
Effective HR becomes more important
More people working is actually better for the
economy

76. Question time