Feb 2012: Age discrimination

Chris Lawrenson, head of legal services at the Building Societies Association, discusses age discrimination in financial services and the impact of the Equality Act in 2012

The Equality Act became law in 2010, but has important new provisions that take effect this year. The Act combines and streamlines existing laws against unfair discrimination and introduces some new requirements.

There are a wide range of detailed provisions affecting both the private and public sectors, but the key one (section 13) prohibits discrimination against someone because of what is described as a protected characteristic; this ‘catch-all’ term covers age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex (gender) and sexual orientation.

Many of the Act’s requirements are already in force, but one new provision of potential importance to financial services – a ban on age discrimination in the provision of services (under section 29) – is yet to be implemented. It was due to take effect from April 2012, but the timetable may have slipped. We expect confirmation from the Government Equalities Office “early in 2012”.

When in force, section 29 will prohibit a service-provider discriminating against a person by not providing that person with the required service. At first sight, this will affect financial services products that are currently available only to people in certain age ranges, for example, ‘silver saver’ accounts, young saver-type products and equity release mortgages, which might be open only for example to the over 50s or over 60s, etc.

Age-related products

But, this may not be the case. Throughout the development of the new legislation, the government’s very clear position was that such products will be able to continue. For example, the Government Equalities Office has said that providers will be able to continue providing products only to certain age groups.

Indeed, businesses may be able to rely on a statutory exception provided they can show that they were exercising a proportionate means for achieving a legitimate aim.

Making certain products exclusive by age can, for example, make it commercially possible to pay higher rates of interest than if the products were available to all customers. It is up to each firm to make its own decision about age-related products, including pricing and age parameters, but some general points can be made.

For instance, age-related products can help support the Financial Services Authority’s key outcome of catering for the needs of the target market. ‘Silver saver’ accounts might help supplement incomes around retirement when people move onto fixed incomes.

‘Young saver’ accounts can encourage the savings habit among young people. They may also help nurture financial responsibility, awareness and literacy among the young in a practical, hands-on way.

Considerations regarding equity release mortgages might include the fact that they are a method of raising finance without requiring repayment in the borrowers’ lifetime, and can be used to finance care at the time of greatest need in an environment where public funding is less available.

MMR

The Mortgage Market Review paper, published by the FSA in December, recognises that the MMR proposals could lead to indirect discrimination against older mortgage applicants, by “disproportionately” affecting them, or younger applicants, who may not have been working long enough to provide the required history for income verification.

However, the FSA also recognises that the benefits of the proposals to these age groups might outweigh the detriment. For example, older customers might benefit by being prevented from taking out mortgages that they cannot afford after retirement, and younger customers might benefit by a delay in taking out a mortgage until they can afford it.

(Currently, the FSA does not plan any amendment to MCOB 11.6.12 R, which requires firms to take into account reasonably anticipated future changes in income – for example, on retirement - when assessing ability to repay.)

Risk assessment

We are waiting for government feedback on another proposed exception to the Equality Act, which will be of particular interest to mortgage providers and insurers; namely, that any assessment of risk involving consideration of a person’s age will not contravene the Act provided that it is carried out by reference to relevant information from a source on which it is reasonable to rely. In proposing this exception, the government has recognised that:

"financial services providers need to take into account a person's age because it is a relevant risk factor in determining, for instance, the frequency and likely costs of meeting claims under insurance policies or the likely risk of default in relation to a bank loan or mortgage."

The clear intention of government and parliament was that age-related products should continue after the implementation of age discrimination legislation. Despite the possibility of slippage, firms would be wise to carry on with the April implementation in mind, unless and until the government confirms a change of plan.