New regulations
Insurance benefits
Next steps

New regulations

On February 17 2011 the government published draft regulations on the abolition of the default retirement age. These contained rather odd transitional provisions, which did not reflect its previously announced policy. Revised regulations were then published on March 1 2011, removing the anomaly. These are subject to the affirmative resolution procedure, and it is hoped that they will be approved by Parliament in time for the implementation date of April 6 2011.

The last date for giving notice of intention to retire an employee under the statutory regime remains April 5 2011.

The statutory regime allows for a maximum of 12 months' notice, so that a notice given before April 6 2011 could expire after September 30 2011. Under the new regulations:

  • the old regime will apply to retirements of employees who are 65 on or before September 30 2011 provided that the employer has given notice of intention to retire on or before April 5 2011;
  • there is some debate as to the latest date on which such notice could expire – the usual rule is that the day on which notice is given is excluded from the time period, so the maximum notice of 12 months would expire on April 5 2012;
  • such an employee could still make a request to continue working, but would need to do so on or before January 4 2012 (as more than three months' notice is required); and
  • following such a request, an employer could agree to delay the retirement date by six months or less and still rely on the old regime. This could mean that the latest retirements under the old regime are on October 5 2012. If a longer or indefinite extension is agreed, any subsequent retirement would need to be justified.

Insurance benefits

As expected, the draft regulations contain an exemption allowing employers to restrict group insurance benefits provided by an insurance or financial services provider to employees under 65 or any higher state pension age.

Employers will need to check whether employees have any contractual rights to the continuation of such benefits past 65 before using this exemption.

Employers who require over-65 year olds to top up the standard employer contribution to achieve cover may also need to reconsider their approach, as the exemption does not cover this. Such an approach would need to be justified.

Next steps

Employers should identify any employees who are already 65 (or a higher normal retirement age) or will reach that age before September 30 2011, and decide whether they wish to retire them under the old regime. If so, the employer must ensure that notice of the intended retirement date is given on or before April 5 2011.

Employers should review their insurance benefit schemes and consider whether changes may be needed to other benefits and policies, such as enhanced redundancy schemes and share scheme plans.

Further, employers should review whether any employment contracts contain compulsory retirement ages.

Finally, employers should consider their potential approaches under the new regime:

  • An employer can retain a retirement age and seek to justify it (ie, show that it is a proportionate means of achieving a legitimate aim). While a legitimate aim may be relatively easy to establish (eg, workforce planning), it is likely to be difficult to show that a specific retirement age is a proportionate means of achieving it. Employers adopting this approach will need to start work now on assembling hard evidence to support their chosen age – as Acas states, "assertions alone will not be enough". Employers operating a justified retirement age will also need to adopt a fair procedure when retiring an employee, which is likely to include considering any request to continue working. The Supreme Court recently gave permission to appeal a Court of Appeal ruling on justification of a partnership retirement age in Seldon v Clarkson, Wright & Jakes.
  • An employer may choose to abandon compulsory retirement. Older employees with performance issues will have to be managed in the same way as younger ones, rather than simply avoiding the issue until the employee retires. Managers may need refresher training in performance management.
  • An employer may use a maximum recruitment age, but this will also need to be justified.

For further information on this topic please contact Andrew Brown at Herbert Smith LLP by telephone (+44 20 7374 8000), fax (+44 20 7374 0888) or email ([email protected]).