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Comments from ACCA
December 2007

ACCA is pleased to comment on the above consultation paper. Many of ACCA's members are involved in pensions issues as company accountants and managers, external accountants and auditors, and as trustees.

We consider that this paper to be an important consultation. We agree strongly with the central premise of the paper, viz that flexible retirement as a concept is a highly desirable accompaniment to current pensions developments, as well as being one which is conceptually consistent with the idea of ‘work life balance', which is being promoted strongly elsewhere within the Government. We also accept that the full potential of flexible retirement will not be realised unless pensions rules and HR policies are co-ordinated.

The paper focuses on the concerns which have been expressed by employers about the implications for the adoption of flexible retirement practices of the age discrimination laws. A number of important technical issues are raised. But it should also be borne in mind that a key factor in explaining the conduct of employers in respect of this issue has been the difficult funding environment which has affected the great majority of occupational pension schemes in recent years. This issue, and the increasing burden of regulation generally, will have pre-occupied employers and trustees alike. We suspect these factors will have deterred many employers and trustees from considering changing their scheme rules to accommodate flexible retirement practices following the changes made by the Finance Act 2004. Another important factor which needs to be addressed in the context of the consultation is the consequences for the rights of members of final salary schemes when they leave full-time employment and switch to lower-paid employment on a part-time basis for a number of years before actual retirement – if workers are going to be materially worse off in terms of their pension rights at NPA by taking advantage of flexible retirement then many can be expected to take the rational decision to keep working on a full-time basis, which of course may not suit the needs of either party.

We address below questions which pose general public policy issues rather than those that are directed at individual employers.

Q1 What is direct and indirect age discrimination in relation to flexible retirement?

We do not consider that refusing to allow employees to start drawing their pensions at 50 or 55 or at NPA will constitute direct or indirect age discrimination, since such persons will not be treated any differently from other employees who are below that age. But we consider that a refusal by schemes to allow employees to accrue pension rights after NPA, or after drawing an early retirement pension, could well be construed as age discrimination under the statutory definition. In our view, refusal to afford continuing scheme membership rights in these circumstances would not be a legitimate aim on the part of the employer and could not be objectively justified.

Q3 The retention of NPA below 65

We believe that it should remain possible for schemes to set an NPA below 65. This allows for a degree of flexibility which we consider is appreciated by both sides – the employee will have the opportunity to start drawing his or her full pension entitlements before NRA while, from the employer's perspective, the NPA provides the legitimate opportunity for individuals to leave employment voluntarily before the regulation retirement age. Provided that there is no compulsion on either side, and that employees remain entitled to work on if they wish to do so, we do not see that this practice is in itself inconsistent with the age discrimination rules or efforts to promote flexible retirement.

Q4 The operation of the DRA/NRA and NPA

The ability of schemes to set an NPA some years earlier than the DRA/NPA is a positive encouragement to flexible retirement. But it also gives rise to potential difficulties in the light of the age discrimination rules. Allowing those who are currently in receipt of a scheme pension to continue to make contributions to it would doubtless cause administrative and cost problems to schemes. But we believe that to treat employees who have already reached their NPA less favourably, for pension purposes, than other employees risks breaching the law as it currently stands. Given the difficulty of arguing for objective justification of any prohibition on workers continuing to accrue pension credits, we believe that a specific exemption would be needed to entitle schemes to preclude employees in this position from the right to invest further in their scheme.

Q6-9 Drawing benefits and continuing to work

We do not believe that the apparent failure on the part of many schemes to make appropriate modifications to their rules so as to take advantage of the changes made by the Finance Act 2004 indicates a lack of interest by employers or trustees in the idea of flexible retirement. As the paper suggests, there are a number of technical uncertainties which stand to be resolved before many schemes will feel able to take action. Before making changes, employers and trustees will also need to be satisfied that, among other things, members of final salary schemes will not be financially disadvantaged by moving to flexible retirement. We have also made the point, above, that most sponsoring employers and trustee boards have been obliged, over the same period, to address serious funding problems and an increasing regulatory burden.

We do not consider that flexible retirement practices are in themselves discriminatory. It will be recalled that parents of young children and those with caring responsibilities already have the legal right to negotiate flexible working practices with their employers and the Government has expressed its intention to extend those rights further. Reforms in this area have not been seen as discriminatory against workers who are not parents or carers. Flexible retirement practices should, in our view, be seen as being motivated by similar public policy concerns to encourage flexible working.

Q14 Inability to take pension unless workers leave employment

We do not believe that any current restriction imposed by scheme rules on workers continuing to work for their employer after starting to draw their pension is discriminatory, on age or other grounds. A restriction of this kind will apply to all employees regardless of their age or length of service. In the context of promoting flexible retirement, however, such restrictions must act as a disincentive to progress, at least to the extent of making it less likely that individual workers will feel able to work on with their current employer.

Q15-20 Not providing benefits after NPA

As stated above, we consider that to allow individuals to work on after NPA but not to offer further pension and other benefits to them is likely to amount to discriminatory practice.

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