BIS and the DWP have jointly issued a consultation document on the Government’s proposals to abolish the default retirement age (DRA) of 65. Consultation closes on 21 October 2010.

The main proposal is abolition of the DRA from 1 October 2011, with transitional arrangements applying from 6 April 2011, and removal of the associated statutory retirement procedures e.g. the duty on employers to give a minimum of six months’ notice of retirement to employees. Employers wishing to have a compulsory retirement age for their workforce from this date will be able to do so only if they can objectively justify it as a proportionate means of achieving a legitimate aim. Transitional arrangements will apply for the period until 1 October 2011 where retirements have already been initiated before 6 April 2011.

In the Seldon case, which concerned the compulsory retirement of a partner in a law firm, the Court of Appeal concluded that, to be objectively justifiable, the aim of a compulsory retirement policy must be within or consistent with the Government’s social policy objectives and that the Government’s social policy objective in setting a DRA to allow younger people to have a better chance of employment and better promotion prospects is legitimate and justifiable. On that basis, at least in relation to the retirement of partners, succession planning and the creation of congenial and supportive culture can be ‘legitimate aims’ for this purpose.

Other key proposals are:

  • as announced in the Coalition Statement and Emergency Budget, to re-establish the link between earnings and the state basic pension, and from April 2011 introducing the ‘triple guarantee’ whereby pensions will rise by the highest of earnings, prices or 2.5%; this is to be discussed in greater depth in subsequent consultations;
  • to examine how employers and employees might be encouraged to discuss potential flexible retirement arrangements and options for flexible working; one question is whether guidance or a code of practice on flexible retirement options would be of use.

There is nothing express in the consultation about occupational pension schemes. As long as the current age discrimination exemptions remain in place, then the main developments are likely to be more postponed pensioners and flexible retirement with related benefit design and funding issues. This may be one good reason for schemes to think hard before removing any maximum service provisions.