It’s all change on pensions

JUNE SALMON of Barker Gotelee explains the abolition of the Default Retirement Age and new rules on pension provision by employers

The Government said it was to reflect the realisation that people are living longer and need to work longer to save for retirement. It has legislated for mandatory pension contributions from employers and employees to build up pension reserves for the future.

If an employer has a company compulsory retirement age in place, they will have to justify objectively why the employee is being dismissed based on their age. They must show a legitimate aim is being pursued and that the way the decision was made was “proportionate” – that is, corresponding to a real business need going no further than necessary in meeting it. Employers will also have to show that alternatives were considered.

Most employers will opt to abandon the fixed retirement age altogether, showing the reason for the dismissal was not related to age discrimination. Examples of where it has been possible to retire a worker lawfully, without the DRA, are in occupations requiring exceptional mental and/or physical fitness, such as where there is a significant degree of manual handling or physical strength required for an employee to undertake their duties. The caveat is that this must be viewed on a case by case basis and not viewed as a generally accepted policy.

Both employers and employees must prepare themselves for the pension changes which are to follow. The Pensions Act 2008 introduced compulsory pensions for all employees.


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These reforms aim to increase each employee’s savings for retirement. There will be a new, low-cost pension scheme, which will be introduced gradually over the next few years. Large employers will be the first businesses to be affected by this ,on October 1, 2012.

Employers will have an ongoing duty to maintain a qualifying pension to:

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n Enroll eligible workers into a qualifying workplace pension arrangement;

n Choose the qualifying scheme(s) they require to comply with their duty; and either

n Make a minimum 3% contribution towards the scheme; or

n Offer membership of another scheme which meets the criteria.

Employees will also have to make a mandatory contribution to their scheme of 4%, with a further 1% paid as tax relief by the Government. An eligible worker is an employee aged between 22 and state pension age and earning above the Income Tax personal allowance of �7,475 in 2011/12.

An opt out is possible, but this has to be actively done by the employee without any assistance from the employer. Criminal penalties including a fine and/or imprisonment will be imposed on any employer breaking this rule. Employees will be automatically rerolled every three years.

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