This long-awaited consultation document is not, unfortunately, the anticipated draft guidance, but a further information-gathering exercise. It seeks views on key issues that have been raised by industry since the implementation of Schedule 2 (the pension provision) of the Employment Equality (Age) Regulations (SI 2006/1031, as amended by SI 2006/2931) in December 2006.

Guidance [PDF] on those areas of the Age regulations which initially caused most concern was at that time issued jointly by the former DTI and the DWP (see earlier Aries article). A key issue still causing confusion, however, is the application of the regs in relation to flexible retirement* and pension provision.

*In the context of pensions generally, flexible retirement refers to giving members of pension schemes the flexibility of taking all or part of their pension and the associated pension commencement lump sum whilst continuing to work (full or part time). It also applies where a scheme’s NPA is below 65: members can work until 65 (the Default Retirement Age (DRA)) unless the employer wishes to (and can) objectively justify compulsory retirement before that date. Members could also, with the agreement of their employer, work beyond the DRA. In the context of this consultation, however, flexible retirement refers to the situation where the employee has reached the scheme's NPA.

DWP has been getting many requests for exemptions, guidance or a departmental view on what might be discriminatory or acceptable practice for flexible retirement provision. There is little case law yet and some employers fear that what seems not to be discriminatory today, may be regarded as age discrimination once case law has been settled. The two primary areas of concern are:

• The interaction between the Age Regulations and the increasing desire to allow older workers some flexibility in how they work as they approach retirement, and
• The provision of death benefits beyond a scheme’s Normal Pension Age (NPA).

At the moment, however, DWP feels the range of options and varying scheme practices which exist make it impossible for Government to offer any solutions or exemptions. No legislation or guidance on these issues is going to be forthcoming without a fuller understanding of the problem. Nevertheless DWP would like to explore the possibility of some national targeted exemptions which deal with particular treatments.

The DWP is asking 20 questions:

Q1. We would welcome your views on what you believe might constitute direct or indirect age discrimination in relation to flexible retirement.

Q2. It would also be helpful if you could indicate practices which you believe should be exempt or which could be easily objectively justified under any new provision.

Q3. We would welcome your views and opinions on the retention of NPA below 65. Do you believe this is critical to the workforce planning and smooth operation of pension schemes?

Q4. We also welcome your view on the operation of the DRA/NRA and NPA when flexible retirement is provided. Do you have any suggestions for change which would provide generic solutions?

Q5. We in particular welcome comments on how pension provision is handled over NPA (if before DRA/NRA).

Q6. In some cases drawing benefits and continuing to work is not an option. What do you think are the reasons for this?

Q7. How common a practice do you think this is?

Q8. Do you or don’t you consider such practice discriminatory – and why?

Q9. What are the specific scheme rules and legislative provisions which create the problems in this area?

Q10. Do you, as the employer, trustee or pension administrator offer the same scheme as that offered to new entrants therefore treating everyone in the same way?

Q11. If there is a waiting period should this be waived?

Q12. Do you, as the employer, trustee or pension administrator allow the member who has reached their maximum number of years service permitted by the scheme to continue to accrue benefits in that scheme?

Q13. Do you, as the employer, trustee or pension administrator allow them to continue to accrue up to their maximum and then be treated as above if they still have not reached NRA or above? We'd be grateful to know your reasons for your answer.

Q14. As there is no legal requirement to provide flexible retirement at present, scheme rules may still state that a pension will only be paid when a member leaves service/retires. What are your views on this? Is there a concern that this may continue to promote an early exit from labour market – and why?

Q15. What are your views on not providing benefits after NPA?

Q16. Since 6 April 2006 the pension tax rules provide the facility to take all or part of benefits provided normal minimum pension age has been attained, continue working while accruing further benefits. Some employers have said they would prefer not to consider this option. Is there any evidence that if this option were to be pursued further it would have a detrimental effect on the scheme provision?

Q17. Please tell us other views or suggestions which you believe should be considered.

Q18. Preservation legislation does not take into account flexible retirement. The DWP has no current plans to change primary legislation. Therefore, a simpler solution may be additions to regulations which list alternatives to short service benefits (SSB) within PSA 1993. These additions could cover cases where a final salary scheme lets members draw a percentage of their pre-date (e.g. pre -NPA) benefits, but make it clear that, once you have taken that percentage chunk, the member doesn't have any additional rights to have that chunk taken into account for valuing pre-date benefits SSB rights. Do you agree that this would be the simplest solution?

Q19. Are there other solutions you could share with us?

Q20. Where an employer ceases such cover for those who continue to work, the employer must objectively justify this decision. Employers may adapt levels of benefit to reflect the different risk profile if they wish, but they will still need to objectively justify this action. What are your views on this? Do you believe there are any occasions where it may be justifiable to not provide death benefits to employees after NPA? And why?