Retirement and Pensions Auto-enrolment

Guidance for retiring employees – information about Retirement and Pensions, updated April 2017.

The statutory default retirement age (DRA) of 65 years was removed in 2011, meaning that Employers cannot automatically end an employees employment when they reach that age anymore (in most circumstances). Here we look at what’s happened since the law changed… updated 2016:

So what does this actually mean?

Workers can now carry on working past age 65 if they want to. However, this change in the law doesn’t affect the fact that employees can still choose to voluntarily retire at age 65 if they wish.*

Now, Employers who wish to end a worker’s employment will either have to:

• Follow a fair procedure under normal fair dismissal rules, e.g. a dismissal for conduct or capability (treated like any other employee), otherwise they could face an unfair dismissal claim and an age discrimination claim from the employee, or
• Keep their own compulsory retirement age for all employees called an EJRA (Employer Justified Retirement Age) but be able to justify this. Such dismissals would be on the grounds of ‘some other substantial reason’ and would also need to follow a fair procedure* – giving the employee adequate notice of impending retirement, allowing them to make representations before a decision is made, which includes considering any requests for them to stay on beyond the compulsory retirement age, allowing a right to appeal.
• * It is not clear whether the ACAS Code of Practice on Disciplinary and Grievance procedures applies to EJRA’s or dismissals for ‘some other substantial reason’ (SOSR). A recent tribunal case, Cummins v Siemens Communications Ltd said the code did apply to SOSR dismissals but this decision is not binding on other tribunals.

Your Contracts and Handbooks must be amended to reflect this new position.

If an employer wishes to keep their own compulsory retirement age they must be able to justify that it is a proportionate means of achieving a legitimate business aim.

An aim can be ‘legitimate’ if it is related to:

• Economic factors, such as the needs of running a business (e.g. workforce planning – the need for the business to recruit, retain and provide promotion opportunities and effectively manage successions)
• The health, welfare and safety of the individual to be retired, their colleagues and the public
• The particular training requirements of the job.
• ‘Proportionate’ could mean (demonstrating that the compulsory retirement age as a proportionate means of achieving that aim):
  • What the employer is actually doing to achieve its aim
  • The discriminatory effect would be significantly outweighed by the importance and benefits of the aim and
  • The employer should have no reasonable alternative to the action they are taking.

Therefore the employer would need to provide evidence of all of this – that they have ‘objective’ justification for the retirement age. Employers can start by setting out the reasons it needs the retirement age; consider whether they have good evidence to support this; then consider if there is an alternative or less or non-age discriminatory way of achieving the same result.

Retirement and Pensions – So what’s happened since the introduction of this? There have been a few high profile employment tribunal cases so far.

In a 2012 case for age discrimination bought when a firm retired an employee at age 65, the UK Supreme Court said that an employer could have their own DRA. The Supreme Court said that:

• ‘Succession planning’ (allowing opportunities for promotion and retention of younger staff where there is real business need for this) and
• Avoiding the performance management dismissals of older workers (who were underperforming – referred to as ‘dignity’ by maintaining a congenial and supportive workplace)

are legitimate aims to allow an EJRA (backing up earlier ECJ decisions).

In March 2015, the Employment Appeal Tribunal heard the appeal in a test case against five police forces as to whether the rule requiring police officers to retire after 30 years’ service (to cut costs) is legal (Harrod and others v Chief Constable of West Midlands Police and others). The EAT, in July, decided this didn’t constitute age discrimination (the original Employment Tribunal said it was age discrimination). The Police Superintendents Association gained permission to go to the Court of Appeal and in March 2017 the CoA dismissed their appeal. Lord Justice Bean, leading, said:

“The decision to reduce officer headcount to the fullest extent available was taken in the interests of achieving certainty of costs reduction and it was not for the Tribunal to devise an alternative scheme involving the loss of fewer posts. The second element of the decision, to confine dismissals to officers with more than 30 years’ service, cannot be impugned either, because no other method of selection was lawful. The only possible conclusion from these two propositions was that the Respondents’ actions were justified and that the Appellants had no valid claim for age discrimination.”

So, what age is a proportionate age to pick?

Most employers will find it safer at the moment not to have a compulsory retirement age as it can clearly be difficult to show why it is necessary in their business, in relation to their aims.

Where a company carries out a lot of different functions they would find it difficult to have a standard retirement age – but they may be able to have a standard retirement age based on job categories (although of course this doesn’t take into account an employee’s individual fitness and health levels!).

From now on, employers basically need to plan with each employee their individual retirement age – with workers retiring at different ages depending on their capabilities and the job’s requirements.

It is not unlawful for employers to ask employees about their retirement plans (for example for the purpose of planning their future workforce requirements), but employers should be wary of the risk of age discrimination by, for example, putting pressure on the employee to retire. Employers can do this by not expressly asking employees what their retirement plans are, but ask them about their future aims and aspirations – ideally as part of a regular appraisal discussion (that applies to all workers).

Retirement and Pensions – Pensions Auto-Enrolment – the full details

From October 2012 most workers will start being auto-enrolled into a pension plan by their Employer (under the Pensions Bill that also abolished the Default Retirement Age during 2011) – here we give you the full details of the Scheme (as they stand in 2018):

Employers will have to start paying up to a minimum of 3% of each worker‘s monthly salary, starting from October 2012 into a pension scheme and manage their workers’ contributions and the pension fund, if the worker is not already in a suitable pension scheme.

• However, there is a ‘phasing’ stage for Employer contributions – eventually Employers must make a minimum contribution of 3%, but can pay more, and workers make their own contributions with a minimum of 5% (they will get tax relief on their contributions) – combined, these contributions should be a minimum of 8% of the workers earnings. Initially, however, Employers who have a staging date up to 5th April 2018 (see below) must make a 1% minimum contribution (and the worker a minimum of 1%).
• From 6th April 2018 Employers must make a 2% minimum contribution (and the worker a minimum of 3%). From 6th April 2019 onwards the Employer minimum will be 3% and the worker minimum must be 5% (so 8% total).
• The start date for the scheme will be staggered by business size and the applicable start dates (called the ‘staging’ dates) are below. The 1st April 2012 is a crucial date though, as the number of PAYE staff that are employed by an Employer at that date, determines that ‘staging’ date the Employer has to start offering the scheme.

This will apply to all workers aged 22 and over (but who have not yet reached the State Pension age) who earn more than £10,000 per year and who work in the UK. This figure, known as the ‘qualifying figure’ (which is the 2014/15 PAYE threshold but remains the same during through to 2018/19) will be reviewed annually in April and is made up a worker’s pay, overtime, commission, bonuses, statutory sick pay and statutory maternity/paternity/adoption pay. These workers will be called ‘eligible job holders‘ under this legislation and must be auto-enrolled in the pensions scheme.

Workers aged between 16 and 22, and those aged between State Pension Age and 75, and those who are earning more than £6,032 (the 2018/1 Lower Earnings Limit) may join if they choose and will receive Employers contributions. These workers are called ‘non eligible job holders‘ under this legislation but have no right to be auto-enrolled; they must choose to join.

Those workers earning between under £6,032 (from 6th April 2018) can also choose to join the scheme, but may not be eligible for Employer contributions.  . These workers are called ‘entitled’ job holders and Employers do not have to make contributions for these workers; these workers do not have to join the scheme you have chosen for automatic pension enrolment, it can be any scheme you offer they can join.

The upper limit of the qualifying earnings band is £46,350 (from 6th April 2018) – so Employers will only need to make contributions from the Lower Earnings Limit Level to the upper limit.

This includes agency workers.

Eligible jobholders will have to be enrolled automatically by the 12th week of their employment but can choose to opt-back out of the scheme after auto-enrolment.

Employers must communicate to their workers, in writing, when their scheme is starting and how the workers are affected by this. The Employer must tell them they have been automatically enrolled and also that they have the right to Opt Out if they want to do so. From 1st April 2014, Employers have 6 weeks to provide information to workers on their joining and opting out rights.

To Opt Out of the pension scheme a worker must complete an ‘opt-out’ notice within the first month of being auto-enrolled – and will receive a refund of contributions made. A Worker can leave the scheme at any other time if they do not Opt Out, but will not receive a refund of contributions.

Every 3 years all those who have Opted Out will need to be re-enrolled in the scheme (but again can choose to Opt Out).

Employers must register with The Pensions Regulator and give them details of their scheme and the number of people that have been automatically enrolled.

If an Employer does not offer their own pension scheme they will need to choose one – The Pensions Regulator can help with this or you can use the new National Employment Savings Trust (Nest) scheme.

If an Employer already has their own pension scheme they will need to check it is a qualifying scheme and confirm this with the Regulator– a qualifying scheme must not impose barriers, such as probationary periods or age limits for members; or must not require staff to make an active choice to join.

In addition, from 2012, Employers must not:

• Encourage workers to opt out of the pension scheme (e.g. by using inducements to encourage a worker to Opt out – a salary increase or one-off payment in return for a worker opting out)
• Have recruitment practices in place that benefit job applicants who indicate they are prepared to opt out, or screen out applicants who wish to join the pension (e.g. the Employer must not ask questions or make statements that state or imply that a job applicant’s success is dependant on whether or not they would opt out of the pension scheme; or for example include an Opt Out form as part of a general application pack).
• The Pensions Regulator will be responsible for any breaches by an Employer in the above two circumstances.
• Treat a worker unfairly or put them at a disadvantage or dismiss them because of automatic enrolment (there will be no time limit needed by employees to claim unfair dismissal in these circumstances).
• Employees will also be able to ‘whistle-blow’ if the feel they have been subject to detriment or dismissal for making a protected disclosure under whistle-blowing legislation, if their employer fails to comply with the auto-enrolment legislation.

Staging date timeline

Employers can choose to delay working out who to put into a pension scheme for up to three months for some or all of your staff. This is known as postponement. You can read more details here.

The Pensions Regulator have a range of enforcement options for Employers who don’t comply with pensions auto-enrolment, which includes fines and Civil Court Action.