Removal of Default Retirement Age: Impact on insured benefits – February 2011

28 Feb 2011

The Government has confirmed its intention to remove the DRA completely. This begins on 6th April 2011 and the DRA will be fully abolished on 1st October 2011.

Summary of Changes

From 6th April 2011 employers will not be able to issue any notifications for compulsory retirement using the DRA procedure. Between 6th April 2011 and 1st October 2011 any retirements notified before 6th April 2011 will still be allowed provided the procedures set out in the Employment Equality (Age) Regulations 2006 are correctly followed.

After 1st October 2011 employers will not be able to use the DRA to compulsory retire employees. The only exemption is if an employer is using an employer justified retirement age (EJRA).

An EJRA will be allowed for some or all staff on health or safety grounds or other objectively justified grounds. This is likely to be used by only a minority of employers which could include air travel controllers and police officers. There is currently no guidance on EJRAs although case law will develop once the DRA is abolished. The only fair grounds on which an employee can be dismissed is their performance so managing employee‟s performance properly will become more important for employers in the future.

Impact on Insured Group Risk Benefits

The Government have announced it will introduce an exemption to the principal of equal treatment where Group Risk insured benefits are provided by an employer. This will permit these benefits to be withdrawn in line with the State Pension Age which will initially be 65 but will increase thereafter.

The Government have specifically mentioned the exemption will apply to the following benefits:

  • Income Protection
  • Life Assurance
  • Sickness and Accident Insurance
  • Private Medical Insurance

Although not mentioned it is anticipated this will also include critical illness insurance. In the Governments response to the consultation on the phasing out of the DRA they specifically recognise the importance of Group Risk insurance and said:

The Government believes that it is in the wider interest that these benefits continue and wants to support the inclusiveness of Group Risk insurance where the spread of risk allows cover to be provided to individuals who might otherwise be unable to obtain cover or only get cover on unfavourable terms”.

“We believe that the safest way to guard against these benefits being either greatly reduced or withdrawn for those currently covered is to provide an exception. We therefore intend to introduce an exemption to the principal of equal treatment on the grounds of age where group risk insured benefits are provided by an employer. It will permit such benefits to be withdrawn which will apply initially to employees aged 65 and above and will rise in line with the State Pension age”.

Issues still to be clarified

The response issued by the Government needs further clarity in the following areas. We are investigating and will provide updates in due course.

      1. The response only refers to “insured” benefits and is unclear whether the exemption would apply to self insured benefits.
      2. Confirmation that Critical Illness insurance benefits will be included in the exemption.
      3. Confirmation on whether Partners within a partnership firm would be considered as “employees‟ for the purposes of the exemption.
      4. The age at which the benefits can be withdrawn is linked to State Pension age. This will rise initially from 65 to 66 and we need to understand how the legislation would affect employees who are receiving benefit through to age 65 but at the time they attain age 65 the state pension age has increased
      5. It is not yet clear whether the removal of the DRA will result in changes to the insurer’s requirements for continuing cover beyond age 65. Currently, some insurers will only extend the cover subject to a medical underwriting assessment and others will only extend if the employees are not absent from work due to injury or illness on their last working day prior to attaining age 65


We would recommend that employers consider whether they wish to utilise the exemption and effectively withdraw the provision of benefits to persons aged above the State Pension age.

 We would recommend the following are considered when reaching any decision.

At this stage the cost of continuing life assurance benefits for employees who continue working beyond age 65 is not prohibitive although it is possible that as more employees continue working beyond the state pension age the costs will rise due to the increased risk associated to a larger number of older employees within the scheme.

It will be necessary to apply a consistent policy to avoid discrimination. If employers agree to continue insured group risk benefits for some persons working beyond the state pension age this would need to apply to all employees unless an employer justified retirement age is justifiable for certain types of employee.

It is anticipated the increased and sometimes prohibitive costs associated to extending income protection, critical illness and private medical insurance costs beyond age 65 will continue.

For further information the following links to the Department of Business, Innovation and Skills website which includes links to all relevant documents including ACAS guidance for employers.

Additionally, please contact your normal Wingate adviser for more information.

 February 2011


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