Age discrimination is a serious issue – one I feel more strongly about as the years go by – but you would have to go a long way to persuade me that the implementation of last year’s anti-discrimination legislation is doing less harm than good.
I am talking about the worrying fact that age discrimination legislation has cut group protection sales by a fifth as employers balk at soaring premiums for those approaching 65.
If ever the negative impacts of a policy have outweighed the supposed benefits, surely this is a perfect example.
The logic of the well-meaning Brussels politician is that you have to be able to offer exactly the same benefits to every single member of staff, regardless of age. When it comes to group protection, employers have traditionally covered staff up to 60 but offering the same level of cover gets considerably more expensive – perhaps 50 per cent more – as an employee approaches their 65th birthday.
The industry thought it could get round the problem with flexible benefits schemes, saying to staff they could have so many pounds a year to spend on the benefit of their choice. As with the switch from defined-benefit to defined-contribution pensions, this would neatly transfer the underwriting risk to the individual rather than the company and let them choose the benefit that was most appropriate for their time of life.
But the cautious opinion of employment lawyers is that this approach does not do enough to get round the age discrimination laws. Effectively, they say you have to offer the same benefit to everybody. By that same token, one could argue that DC pensions also discriminate against old people. A £100 contribution given to somebody at 65 has no potential for growth and will almost certainly generate less pension income than one given to a 20-year-old.
Many employers have voted with their feet and dropped their scheme, with 19 per cent fewer group protection policies sold last year than in 2005, according to the Association of British Insurers.
The Department for Trade and Industry’s approach to this is blasé, to say the least. It says it will monitor the situation but I cannot see what more monitoring it can do than see levels of cover fall off the cliff.
In less than a year, one in five employees who would have been covered by group protection no longer have that cover. So the result of the introduction of the legislation is that a handful of people who did not know they were being discriminated against have gained some more cover at the expense of thousands more losing cover altogether.
The DTI could apply for an exemption for the UK market on the basis that the way the rules are applied to our situation means they will do more harm than good but the political will is not there.
What this episode reminds us of is the importance of fighting our corner in Europe, both in Brussels and in our domestic media. Without pressure at home, the Government will be more likely to toss away concessions such as agreeing to the age discrimination rules as currently written in return for getting what it wants further up its agenda.
We saw this three years ago when EU social affairs commissioner Anna Diamantopolou tried to force unisex insurance underwriting on us. Her proposals would have had a severely distorting effect on underwriting of annuities and motor insurance for starters, with conventional wisdom pointing to a net overall increase in premiums for everybody as insurers had to factor in the risk of not getting too many people of the “wrong” gender on their books.
That challenge to the UK insurance market was successfully repelled but it does not mean the issue has gone away for ever. The word in the fine restaurants of Brussels is that pre-consultation discussions are taking place about the shape of proposals for new gender discrimination rules to be brought in across the EU.
In light of the group protection debacle, let us make sure we do not sleepwalk into any more directives that do more harm than good.
John Greenwood is editor of Corporate Adviser Money Marketing.