Flexible retirement and age discrimination

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18 December 2008

In broad terms, "flexible retirement" means drawing pension from your employer's occupational pension scheme without leaving your job. 

But in a new consultation paper the government defines it much more narrowly. In addition, the proposed exemptions from the regulations are very specific and would be of limited use. For the most part, trustees and employers would be left to argue objective justification for their practices case by case.

The government accepts that its proposals do not address all the concerns so it is offering to develop non statutory guidance on "workable good practice" in consultation with interested parties. But its timid start suggests that any guidance is unlikely to give wide-ranging comfort.

Since the age discrimination regulations came into force, pension schemes have been uncertain what they can and/or must do in relation to flexible retirement in order to stay within the law. Can they refuse to allow any form of flexible retirement? Can they offer a one-off, all or nothing choice – take all your pension now but at the price of foregoing further pension accrual? These are just a couple of the many possible permutations.   

Narrow definition

The consultation paper has its own definition of "flexible retirement" and it is a narrow one. Under the proposals, a member must:

  • switch to reduced hours or to a lower job grade when he begins to receive some or all of his occupational pension and
  • have reached state pension age.

By contrast, pensions practitioners generally take the term to cover any arrangements for a member to draw some or all of his pension from his employer's scheme without leaving its service. So, for example, it would cover drawing pension while continuing on the same terms and conditions, and drawing an early pension before the scheme's normal retirement age.

Alternative exemptions

The paper invites views on alternative exemptions from the age discrimination regulations for flexible retirement (as narrowly defined).  

  • General exemption

A general exemption from the regulations would allow trustees and employers to withdraw the following from a member who takes flexible retirement:

    • further accrual of pension,
    • death in service and ill health benefits, and
    • a late retirement actuarial increase on undrawn pension.

But, the paper points out, from 2012 the member would be able to require his employer to enrol him in a scheme that satisfies the legislation on Personal Accounts (the new form of compulsory minimum pension saving).

  • Limited exemption

If the government decides against a general exemption, it proposes a specific one to allow a scheme to withdraw death in service benefits from a member who takes flexible retirement. The consultation asks for views whether this exemption should also cover ill health benefits.

Built on an already narrow definition of flexible retirement, both exemptions are themselves highly specific. They would be little use in practice. 

As today, the general defence for trustees and employers facing an age discrimination challenge over flexible retirement would remain objective justification i.e. showing that their practice is a proportionate means of achieving a legitimate business aim.


The consultation runs until 10 March 2009. Changes to legislation about employment issues are often brought into effect in April or October. So October 2009 is probably the earliest possible start date for any amendments to the regulations. 


The new consultation paper follows a consultation that the government issued in October 2007. That paper asked what problems employers, trustees and others saw with flexible retirement under the age discrimination regulations, and what legislative solutions they would like to address them. There were 64 written responses – which shows how live the issue is.

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