Your EEF Intelligence Briefing - 14 January 2011

Default Retirement Age abolished

Despite our calls for a delay of twelve months before implementation the Government announced on Wednesday that it was going ahead with the removal of the default retirement age (DRA). This means sticking to the timescales originally proposed in the consultation document and starting with transitional arrangements commencing as soon as 6 April 2011. The government did however respond to our lobbying by providing an exemption for insured benefits.

These changes will have the following four major impacts on employers:

• From 1 October 2011, requiring an employee to retire at a particular age will be unlawful age discrimination (except in very limited circumstances when an employer can ‘objectively justify’ compulsory retirement).
• The majority of employers will not be able to objectively justify compulsory retirement and must abolish such schemes from 1 October 2011.
• Under transitional arrangements, employers can continue to give notification of intended retirement until 6 April 2011, as long as the retirement takes effect before 1 October 2011.
• To help employers manage the consequences and costs of operating without compulsory retirement, there will be an exemption covering insured benefits (income protection, life assurance, sickness and accident insurance, including private medical cover). Employers will not be required to offer such benefits to the over 65’s in their workforce.

Employers now need to consider the implications for their business of managing without a DRA. To help we have produced our own briefing notes which can be accessed here.

Government has also produced its own guidance which can be accessed here.

For further information please contact Gemma Taylor, Principal Adviser, HR & Legal

Economic Prospects 2011

We published our annual report at the start of the year which examines prospects for the economy and manufacturing this year. We expect a continued strong performance from manufacturing to lead the UK’s economic recovery, spurred on by solid growth in export orders, particularly to emerging markets. However, the report also warns that there are some significant challenges to watch for this year that not only shape our central forecast, but also suggest some caution. These include a separate survey which shows potential direct impacts on manufacturers as sharp government spending reductions start to bite.

Our forecasts show 3.5% growth for manufacturing compared to a solid if unspectacular 2.1% growth for the economy as a whole. In 2012 growth is forecast at 3% and 2.6% respectively. This balanced growth is expected to be broadly based across all sectors with the top performers forecast to include mechanical engineering and metal products, which benefit from having high exposure to export markets where demand is likely to be strongest. The report can be accessed via our website .

For further information please contact Lee Hopley, Chief Economist

Interest Rates

The Bank of England left interest rates on hold again, a decision we supported given the debate around the impact of forthcoming austerity measures and above target inflation will have changed little for the MPC over the past month. Overall, our view remains that, for now, the balance of risks still supports keeping interest rates and asset purchases on hold. However, we believe that if we begin to see price pressures starting to flow through to major wage increases the case for raising rates will become stronger.

For further information please contact Lee Hopley, Chief Economist

Weekly Focus: Pensions Bill 2011

In further developments on the retirement and pensions front this week, the Government has published the Pensions Bill, a vehicle for three main initiatives – switching from RPI to CPI as the basis for increasing pensions in line with inflation, implementing the independent ‘Making Auto-Enrolment Work’ Review and bringing forward the rise in the State Pension Age to 66 by 2020.

Indexation of pensions

At the same time as introducing the Bill, the DWP is consulting on the impact on private-sector pension schemes of using CPI instead of RPI to measure price increases for revaluing pensions in line with inflation. Under the Government’s proposals, employers can only take advantage of the switch to CPI if their scheme rules allow it – or they must change their rules and comply with a new employee consultation obligation.

We are disappointed the Bill does not include a statutory override to create a level playing field for employers. It is notoriously difficult (and in some cases not possible) to change pension scheme rules. This creates what has been called a ‘small print’ lottery as to which employers can take advantage of this change. We will continue to lobby for an override. In the meantime, we welcome the Bill’s provision confirming that, for schemes that do use RPI for calculating increases, no CPI underpin will apply in any year where CPI is below RPI.

Auto-enrolment and NEST

Employers are being phased in, according to payroll size (largest first) to the new duty to automatically enrol their employees into a workplace pension scheme – and make a minimum employer contribution - between October 2012 and September 2016. For larger employers, therefore, key milestones for assessing the impact of the reforms on their existing pension schemes, how they will absorb the costs of potentially higher pension participation by their employees and what payroll and other HR changes they have to make are looming.

The Government accepted the Review’s recommendations but there has been a consequential delay in bringing forward the detailed regulations and guidance for making the reforms work in practice. This is because many of the recommendations can only be implemented by changing the underlying primary law (hence the Pensions Bill). Since the Review was published, we have made representations to MPs and senior civil servants urging them to keep up the pace on the all-important implementing regulations. For example, the Bill contains provisions relating to the self-certification or benchmarking arrangements for employers considering relying on their own pension scheme as an alternative to the default NEST scheme. More guidance will follow when the Bill is enacted. Time is all ready short for some of the largest employers to undertake this kind of review; they can ill afford to be squeezed further. There are many encouraging signs that this message is being acted on by DWP.

For full details of how the auto-enrolment legislation is to be changed see our Auto-enrolment mini-guide for an overview of what the reforms mean for employers. We are also holding a series of auto-enrolment seminars later in the Spring – details will follow soon.

For further information contact Stephen Radley, Director of External Affairs and Policy

In the news

Our Economic Prospects report was widely reported at national and regional level, including the FT (registration required), Independent , Daily Telegraph and Guardian . Lee Hopley our Chief Economist also gave interviews to Radio 5 Wake up to Money and the Today programme. Later in the week we led the business response to changes in the Default Retirement Age which were reported in the FT (registration required) and Daily Telegraph . Steve Radley our Policy Director and Senior Economist Jeegar Kakkad were also interviewed on Wake up to Money, the Today programme and BBC News Channel on the same topic.

For further information contact Mark Swift, Media Relations Manager

Week in review

The week ahead

Tue 18th: Consumer Price Index;
Wed 19th: Labour Market Statistics;
Fri 21st: Retail Sales; Public Sector Finances; Trends in lending

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