UK - Employers could be forced to scrap their money purchase scheme contribution structures when European Union directives on age discrimination come into force, Aon Consulting warns.
Aon principal Chris Erwin said the majority of DB schemes in the UK were designed to replicate final salary schemes by offering age-related contributions, particularly where the membership has a broad age range.
But as there are no clear guidelines as to how the directive will directly or indirectly affect pensions, employers and consultants fear being caught in scenarios in which their age-related contribution rates are ruled as discriminatory to either younger or older employees.
Erwin said: “When age discrimination comes in it will definitely affect the design of DC schemes. Some are done with a flat rate contribution structure, but the majority have a contribution structure that recognises age.”
Erwin also pointed out that if employers scrapped age-related contributions it would force older workers into contributing more into their DC schemes, which could be labelled as discriminatory.
He explained: “One of the consequences of this coming in is that older people having to change jobs will find they have to pay more for the same amount of pension or, paradoxically, they are being discriminated against because they are getting a lower pension.”
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