The need to solve an age old dilemma - blog

Now that the Civil Service has announced that it will scrap its retirement age from April 2010, we have a clear indication of intent for the Government’s review of the Default Retirement Age (DRA), due early next year.

Continuing benefits for a longer time, or indefinitely, isn't particularly problematic if you're talking about "pay as you go" funding underwritten by the tax payer.

However, for employers utilising insurance products to fund their liabilities - or for the insurers providing such products - it's a far more complex matter.

Consider that under current regulations, the national DRA means that employers can currently require an employee to retire at age 65 provided certain procedures are followed.

The Employment Equality (Age) Regulations 2006 commit employers to treat all staff equally - including offering the same protection and benefits packages - whatever their age. Any failure to do so is classified as discrimination.

So, if the DRA is upped or scrapped altogether, this could potentially mean that employers have to make protection products available to a group of employees with a very different age and risk profile.

Setting aside potential discrimination for one moment, an actuarial fact of life is that age is a key risk factor for Group Risk protection products that cannot really be legislated against (pun intended).

The increasing risk of payout that accompanies increased age and failing health for all Group Risk products, combined with the potential for longer term claims for Group IP, means that products will become prohibitively expensive unless we are allowed to price a Group Risk product with a finite period of cover i.e. a fixed age or event where provision of benefits can lawfully cease.

The 2009 Equality Bill will make discrimination on the basis of age in the provision of goods and services unlawful but there will be an exception for financial services - so far, undefined - providing differences in treatment are broadly proportionate to changes in risk.

From a Group Risk provider's perspective, it is fundamental to persuade Government to at least allow an expiry age or an "end date" for Group Risk protection benefits.

If entitlement to Employment and Support Allowance ceases when State pension becomes payable, is it reasonable to expect employers to make double provision when the Government has adopted a more practical approach for State benefits?

This simple alignment would provide defined risk for insurers and clarity and ongoing affordability for employers - thus enabling continued contribution towards plugging the UK protection gap.