Thursday 17 February 2011

Insurance Benefits for the over 65s

The Department for Business, Innovation and Skills has published the draft Employment Equality (Repeal of Retirement Age) Regulations 2011, setting out the framework and timetable for removal of the default retirement age.

Abolition of compulsory retirement means more older workers on the payroll. Employers were concerned that this would send insurance premiums through the roof, as insurance companies would insist on higher premiums to reflect the increased risk of insuring older workers.

The government recognised that many employers might simply withdraw insurance benefits for the entire workforce as a result, or reduce benefits for new employees. So it announced last month that group insurance benefits would be exempt from the age discrimination laws, meaning that employers would be able to have a cut-off date of 65 at which it would not be an age contravention to refuse to provide insurance benefits for older workers. This has good business justification, but it leaves employees at risk of losing their life insurance and private medical cover at exactly the time they need it most.

The government's attempt to turn this policy objective into litigation is contained in regulation 2, which creates a new Schedule 9, paragraph 14 to the Equality Act 2010 in the following terms:-

Insurance etc.
14.—(1) It is not an age contravention for an employer to
make arrangements for, or afford access to, the provision of insurance or a
related financial service to or in respect of an employee for a period ending
when the employee attains whichever is the greater of—
(a) the age of 65,
(b) the state pensionable age.
(2) It is not an age contravention
for an employer to make arrangements for, or afford access to, the provision of
insurance or a related financial service to or in respect of only such employees
as have not attained whichever is the greater of—
(a) the age of 65, and
(b) the state pensionable age.
(3) Sub-paragraphs (1) and (2) apply only
where the insurance or related financial service is, or is to be, provided to
the employer’s employees or a class of those employees—
(a) in pursuance of
an arrangement between the employer and another person, or
(b) where the
employer’s business includes the provision of insurance or financial services of
the description in question, by the employer.
(4) The state pensionable age
is the pensionable age determined in accordance with the rules in paragraph 1 of
Schedule 4 to the Pensions Act 1995( ).”.

That seems straightforward. It's not an age contravention for employers to stop providing insurance benefits to employees when they hit 65 (or any increased state pension age, if higher).

But some important points must be made:-
  1. if the insurance benefit is a contractual entitlement, an employee over 65 can still claim breach of contract even if s/he can't claim age discrimination. In theory, an employee who finds they are no longer covered for private medical cover could have any treatment and sue their employer for the cost.

  2. regulation 2 does not give employers the right to invite employees over 65 to pay any additional premiums themselves. If the employer makes insurance benefits available to those employees over 65 who are willing to pay the top-up, then the situation falls outside regulation 2 and the employer will need to objectively justify their stance. This brings into question the whole issue about whether saving cost can ever be a legitimate aim in its own right.

  3. it is difficult to see why regulation 2 applies to all insurance benefits. Many employers provide legal expense insurance. There is little rationale for saying that the employer can withdraw access to legal expense insurance for the over 65s (which regulation 2 permits). Unlike many other forms of insurance, the cost of purchasing legal expense insurance will not increase for the over 65s.

  4. regulation 2 does not cover self-insuring employers (which most public bodies are). A self-insuring employer will still need to objectively justify any failure to provide such benefits to the over 65s. It is possible that this is a deliberate policy decision by DBIS, as it is difficult to know where to draw the line with self-insured benefits (eg is contractual sickpay a self-insured benefit?) [Thanks to Joy Drummond of Simpson Millar for this point.]


Anonymous said...

"The government's attempt to turn this policy objective into litigation..." Litigation? Surely some mistake? Or just telling it like it is? Preferable to Legislation I'm sure.

Roderick Ramage said...

I am glad that you mentioned "self-insuring" employers, but I am not sure that you went far enough. Where an employer (for employer add or trustees)by contract or trust provides a DIS beenfit, what it provides to the employee is the benefit, which I think is not affected if the employer deals with the risk by effecting insurance, because the insurance is not proivded to the employee. Therefore the provison of the benefits is not effected by the age limit. The Canada Life type of arrangement, in which the benefits are whatever is covered by "the Policy" probably can have the age limit, but qy whether this would be so if the emplopyer's contract terms or announcement spoke only of the benefit and not insurance.