The default retirement age (DRA) in the UK has been fully abolished, meaning that since October 2011 it is illegal for employers to compulsorily retire workers at age 65.
However, although DRA has been removed, it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it. This could apply, for example, to groups where there are certain licensing or fitness requirements.
This change in legislation has potentially far-reaching consequences for the group risk industry, as the upper age to which the benefit is provided is key to the pricing of Life, Income Protection and Critical Illness products. Without an upper age limit these contracts could become financially unsustainable with the likely outcome being that employers may have to withdraw the benefit from all staff so as not to discriminate against older workers – this would have been a classic example of the “law of unintended consequences”.
Fortunately, after extensive lobbying from the UK insurance industry, the Government agreed to an exemption from the legislation for group risk insurances. The exception has been introduced to the principle of equal treatment on the grounds of age for these contracts, recognizing the risk that employers might have ceased to offer insured benefits as a consequence of the removal of the DRA. It has been accepted that it is in the wider interest that these benefits continue and that spreading of risk allows cover to be provided to individuals who might otherwise be unable to obtain it or only get it on unfavourable terms.
This exemption is welcome news and greatly limits the impact of the change in legislation on group risk contracts. Going forward, it will permit benefits to be withdrawn at State Pension Age, which will increase in stages over the coming years. This is obviously a much better outcome than having to provide benefits with no upper age limit at all but it should be noted that there is already a trend for employers and their advisers to want to extend benefit to older ages.
For life cover in particular, requests for a standard termination age of 70 are widespread, as are requests for deferred retirement cover to age 75. These changes bring their own challenges as, for some groups, the average age of the lives exposed is markedly increasing.
Such requests are not yet as frequent for income protection/long-term disability cover but, with workers now remaining in active employment to ever older ages, this is likely to be something that will increase over time, irrespective of the group risk exemption discussed above.
The challenge of managing attendance and disability in older employees is something that insurers and employers will need to address together and it will be very interesting to see how the insurance industry handles these changes and how case law develops over time.