The Government has recently published draft Regulations providing that the default retirement age will be phased out from April 2011 and abolished from 1 October 2011. In addition, a new Pensions Bill has been introduced to Parliament, proposing later state pension ages.

Default retirement age – what is changing?

  • It will no longer be lawful to compulsorily retire employees at a set age. Retirement will be removed from the list of potentially fair reasons for dismissal and, unless it can be objectively justified, it will no longer be permitted to dismiss a worker on the grounds of retirement.
  • Group risk insured benefits (such as income protection, life assurance and sickness and accident insurance, including private healthcare) will be exempt from the principle of equal treatment on the grounds of age. Employers will be permitted to cease to provide or offer these benefits once a worker reaches 65 or the state pension age, even if the worker continues to work after that date. However, such a step will only be permitted where the relevant insurance is provided pursuant to an agreement between the employer and a third party, or where the employer's business involves the provision of that particular insurance/other financial services.
  • As part of the phasing out of the retirement age, the new Regulations, which are currently in draft form but which will take effect from 6 April 2011, provide that employers will not be able to issue notice of retirement for employees reaching the age of 65 on or after 1 October 2011. Interim provisions cover employees reaching the age of 65 before that date.

State pension age – what is proposed?

  • The Pensions Act 1995 already provides for women’s retirement age to reach 65 by 2020, and for the pension age for both men and women to rise to 66 by 2026, 67 by 2036 and 68 by 2046.
  • The Government argues that life expectancy figures have since been revised and that the timetable for increasing pension ages should be brought forward.
  • The Pensions Bill 2011, which was introduced to Parliament in January, proposes that women’s retirement age should reach 65 by 2018, and that the combined pension age should rise to 66 between 2018 and 2010.

Impact on loss of earnings claims

Claimants in personal injury and employment claims, who are already relying on lack of pension provision to enable early retirement, will now be able to rely on the absence of a default retirement age to argue for even greater sums for future loss of earnings. Schedules of loss typically based on a retirement date of between 60 to 65 will now apply increased multipliers, reflecting retirement between 65 to 70.

Defendants and their insurers will find it increasingly difficult to challenge these claims, as most people are reliant in retirement on their state pension, which may not be payable until later; and/or any employment or personal pension, where the basis of calculation may have changed from a favourable final salary to something less generous or where the fund value and annuity rates are likely to have diminished. As civil service and judicial pensions are under review too, insurers should expect judicial sympathy to be extended to claimants arguing that they cannot afford to retire!

The following are likely to remain the key areas for argument/investigation:

  • Mental and physical demands of the job on the over 65s.
  • Evidence as to actual retirement ages applicable to the sector in which the claimant worked, to include evidence specific to the claimant’s type of work. Often the best source of information in this regard will be the claimant’s employer. In terms of general information, recent data from the Office for National Statistics may be useful when seeking to limit retirement ages, at least for the relatively near future, to no more than 65.
  • The claimant’s financial position, to include whether he has other sources of income (e.g. part time job, private pension arrangements and/or savings), and the date at which he is likely to receive a state pension, taking into account his likely state pension age and the potential changes to this set out above. This may give an indication of the time at which the claimant would have been able to afford to retire, had he continued in employment.