Latest news and Articles

FEBRUARY 2011

The publicity surrounding the coming into force of the Equality Act 2010 has been so extensive that we’re sure you already know the major changes brought about by it and are fully clued up on how to address them.  But the Default Retirement Age (“DRA”) was a concept preserved by the Equality Act.  The DRA allowed employers to retire employees on or after their 65th birthday without having to refer to their age as the reason for their dismissal, provided certain procedures were followed.  Following a consultation on the issue, the government has announced that it will abolish the DRA entirely with effect from 1 October 2011.

We’ll leave our employment law colleagues to deal with how this might affect employment relationships, recruitment policies and disciplinary procedures and instead consider what changes might be necessary to any existing employee share schemes or individual employee share awards.

The government has indicated that it does not intend to amend any of the current legislation relating to employee share schemes as a direct consequence of the abolition of the DRA, but this does not necessarily mean that existing arrangements will not be in breach.  It is advisable for companies to review the provisions of existing arrangements before 1 October 2011 just to be sure.

Any provisions that provide for special treatment of employees who leave their employment at or after a particular age will need to be reviewed (i.e. Good Leaver provisions).  In practice, ‘Good Leaver’ provisions usually refer to one of the following:  a company wide, fixed retirement age; a ‘normal’ retirement age at which employees of the company usually retire; or they specify no age at all and give discretion to the board of directors as to what provisions should apply.  Whether any amendments to plan rules or option certificates will be required will depend on what form the current provisions are in.

What about HMRC approved CSOP, SIP and SAYE schemes?

Legislation governs and in some places requires reference to be made to specific retirement ages in order for an arrangement to qualify as an HMRC approved company share option plan (“CSOP”), share incentive plan (“SIP”) or save as you earn option scheme (“SAYE”).  But the government has stated that they have no intention of making consequential amendments to any of the share option legislation following the abolition of the DRA.  How do they reconcile the two?

It seems that there will be a very fine line between compliance with the Income Tax (Earnings and Pensions) Act 2003 and breach of the Equality Act following the abolition of the DRA.  The simple rule in relation to CSOPs and SIPs is that no specific reference must be made to the DRA.  Unfortunately, the statutory rules surrounding SAYE schemes are more complex.

Rebecca Gardner
Solicitor

If you would like any further information about the issues raised in this article please contact Rebecca Gardner, (rgardner@gdlaw.co.uk) or any other member of Goodman Derrick LLP’s corporate team on 0207 404 0606.

 This guide is for general information and interest only and should not be relied upon as providing specific legal advice