The UK statutory default retirement age of 65 (“the DRA”) is now being phased out. The regime under which employers have been able to dismiss employees at 65 by following the statutory retirement procedure with minimal risk of exposure to claims is to disappear. The last day for issuing new notices of intention to retire under the default retirement age regime has now passed. Employers must therefore adapt to the new regime immediately.

The Abolition of the DRA and the Statutory Retirement Regime

The statutory ability to retire employees at the default retirement age of 65 was an exception to the age discrimination legislation implemented in 2006 which provides that employees should not be treated less favourably because of their age unless the treatment can be objectively justified.

Despite the introduction of that legislation, employers have enjoyed the ability to dismiss employees at 65 with relative peace of mind. Providing the statutory retirement procedure was followed, employers have been able to dismiss employees on their 65th birthday or afterwards both fairly (retirement being a fair reason to dismiss) and free of liability for unlawful age discrimination. Against that background, the DRA attracted significant criticism and even legal challenge.

The DRA Transitional Provisions

No new notices of compulsory retirement can be issued as the last date for doing so—5 April 2011—has now passed. Employees whose retirement dates have already been fixed under the DRA regime will be able to submit requests to extend employment, but the last day for doing so will be 4 January 2012. To enjoy the protection of the DRA regime, the maximum extension to which an employer can agree is six months.

Accordingly, the latest possible date for retirement under the DRA regime of employees who are 65 by 30 September 2011 will be 5 October 2012. This allows for the employer to issue 12 months’ notice of retirement on 5 April 2011 with a retirement date of 5 April 2012 and a further six month extension (requested on or before 4 January 2012) to 5 October 2012.

Compulsory Retirement Age or Not: Options Following the Abolition of the DRA

From 6 April 2011, since employers will no longer be able to instigate retirement at the DRA they have two options available to them:  

  • to cease compulsorily to retire employees; or  
  • to adopt a compulsory retirement age for part / all of the workforce.  

Given the uncertainty associated with justifying a compulsory retirement age, the majority of employers are likely to abolish compulsory retirement. This will undoubtedly require a change of mindset such that older workers are managed according to the same principles as others. Dismissals will only be fair if effected for one of the five potentially fair reasons (capability, conduct, redundancy, illegality or some other substantial reason) coupled with a fair procedure.

The abolition of the DRA does not close the door entirely to employers introducing or maintaining a compulsory retirement age for all or part of the workforce. Since compulsory retirement is age related, to maintain compulsory retirement risks age discrimination claims unless in the particular circumstances the compulsory retirement age adopted by the employer can be justified. To avoid successful claims of unlawful age discrimination, employers will need to be able to objectively justify a compulsory retirement age by showing that it is a proportionate means of achieving a legitimate aim.

What is Objective Justification of a Compulsory Retirement Age?

Both the Government and ACAS have noted that it will not be easy to objectively justify a compulsory retirement age.

The test of objective justification requires employers to satisfy the employment tribunal that their aim in requiring employees to retire at a specific age is legitimate and that compulsory retirement is a proportionate means of achieving that aim. Potentially legitimate aims might inc

lude succession planning, recruitment and advancement of junior staff, economic efficiency, maintaining health and safety standards and particular training requirements of a job.

To show that compulsory retirement is a proportionate means of achieving a legitimate aim is likely to be the more challenging limb of the test of objective justification. Employers will need to show that compulsory retirement achieves their stated aim and that the discriminatory effect is outweighed by the importance and benefits of the legitimate aim. Employment tribunals are likely to want to be satisfied that the employer’s stated legitimate aim cannot be achieved by other, less discriminatory, means. In particular, employment tribunals have traditionally been averse to finding that financial constraints alone are sufficient to justify unlawful discrimination.

ACAS has issued guidance (see Further Information on page 4) as to when compulsory retirement might be objectively justified. The examples given include the emergency services, where a significant level of physical fitness is required and air traffic control, where exceptional mental fitness is required. Whilst the examples are of limited value to most employers, the principle that employers will need to be able to point to cogent evidence to justify a compulsory retirement age is of general application. In practical terms, this requires employers to apply their minds carefully as to why compulsory retirement is necessary, at what age, and to gather evidence and record their thinking process in order to be able to substantiate their position.

Compulsory Retirement – Fair Procedure

In addition to justifying a compulsory retirement age in order to avoid an age discrimination complaint, employers maintaining compulsory retirement still need to address the risk of unfair dismissal claims. Since retirement is no longer a potentially fair reason to dismiss, employers will need to rely upon “some other substantial reason” as the potentially fair reason to dismiss. Where employers retire employees compulsorily, for the dismissal to be fair under the usual unfair dismissal principles, they will also need to follow a fair procedure. Fair process in dismissals following the abolition of the DRA is as yet untested ground. ACAS recommends that “adequate” notice of retirement be given. At this stage, employers are likely to be best placed following a procedure based upon the former statutory retirement framework, by serving advance notice of their intention to retire and by considering requests to work beyond the compulsory retirement age.  

Managing a Workforce without Compulsory Retirement

Without a compelling reason to maintain or introduce compulsory retirement, most employers are likely to abolish compulsory retirement entirely. The Government acknowledges that employers and employees will be nervous about discussing retirement plans for fear of the raising of the issue being construed as discriminatory or adversely affecting employees’ future prospects or being used to argue that a subsequent dismissal decision ostensibly on other grounds is really age related and therefore discriminatory.

Both the ACAS and DWP guidance encourages employers proactively to engage in discussions with all their employees about their future plans. However, the guidance is cautious in approach: advising against raising the subject of retirement with older employees, and recommending that instead career planning be discussed with all employees regularly, for example, during annual performance discussions, to enable employers to plan and manage their workforce.

Retirement Policy

To assist with managing the workforce and succession planning and to avoid discussions about retirement appearing (at least to employees) as coming out of the blue (and interpreted as discriminatory), employers may consider introducing a retirement planning policy which makes clear what employees can expect in terms of discussions about future plans at the various stages of their career.

It is likely to be justifiable, for example, to introduce a policy under which an employer makes clear that employees will be involved in discussions about future work plans including retirement plans, if any, with employees as they approach pension age (either occupational or state).

Alternatives to Cliff-Edge Retirement

Employers may also consider introducing alternatives to the all-or-nothing retirement approach which has been prevalent up to now by, for example, introducing options for discussions about phased retirement or part-time working as employees head towards pension entitlement. It seems likely that employers will become increasingly imaginative and flexible in managing ageing workforces. In this vein, the DWP has published a booklet of case studies which describes how certain high profile employers have embraced age-diverse workforces.

Focus on Capability

Employees will of course still be able voluntarily to retire whenever they wish to do so by giving notice of resignation under their contracts of employment. Much of the concern about the abolition of the DRA has centred on a perception that older employees will be unable to recognise their limitations, with the consequence that employers have to address potentially sensitive performance issues by way of performance management and dismissal, with consequent unfair dismissal and age discrimination risks.

If this concern is borne out, it will lead to an increase in dismissals where employers attempt to rely on ‘capability’ as a reason to dismiss employees who would have been retired under the DRA. One consequence would be an increase in Tribunal claims for unfair dismissal and age discrimination. The Government believes that such an increase will be offset by a reduction in Tribunal cases brought as a result of breaches of the former statutory retirement procedure which will no longer apply. Whether this will be the case remains to be seen.

However, the abolition of the DRA will undoubtedly bring into the spotlight the need for employers proactively to manage performance throughout the workforce. In addressing capability issues in relation to a workplace without a compulsory retirement age, employers will need to ensure that their approach cannot be portrayed as age discriminatory by focusing particularly on the older workforce.

Employers will also need to be careful that the performance management processes which they operate take account of the potential relevance, depending on an individual’s circumstances, of the disability discrimination legislation with its particular protection for those who suffer from impairments which have a substantial and long-term adverse effect on their ability to carry out their day to day activities. Given the availability of unlimited compensation and injury to feelings awards in disability discrimination claims (as much as other discrimination claims), employers will need to appreciate the need potentially to make reasonable adjustments in favour of those who qualify as disabled for the purposes of the legislation and to be able to justify dismissal decisions. Similarly, if older workers are selected for redundancy, employers need to be able to defend their selection criteria and processes from attack on grounds of age or disability discrimination.

Other Consequences of the New Regime

Exception for Insured Benefits for Those Aged 65

There had been concern over the effect that the removal of the DRA could have on insured benefits. Employers often place age limits or age-related conditions on entitlements to group benefit schemes such as life assurance, medical cover, income protection schemes and critical illness cover. The cost of premiums for such schemes would have been likely to increase if employers were required to provide these benefits to an older workforce even if such benefits could still be obtained in the market.

The Government has responded to these concerns by creating an exception to the principle of equal treatment on the grounds of age in the provision of insured benefits, believing that it is in the wider interest that businesses continue to provide such benefits. Consequently, it will be possible for employers to cease providing such benefits to employees who are 65 or older or who have reached the state pension age, even if the employee continues working beyond that age. The age limit for this exception will rise in line with the state pension age.

Share and Incentive Plans

Employers should be aware of the effect of the removal of the DRA on employee share and incentive plans. Whether or not employees retain their shares on leaving an employer is often determined by whether they are considered to be a “good” leaver or a “bad” leaver. “Good” leavers are often defined as including those leaving due to retirement.

Following the abolition of the DRA, employers need to decide if retirement is to remain a feature of such plans and, if so, to ensure that the definition of retirement in the share plan dovetails either with a compulsory retirement age or a matter for the trustees’ discretion. If treatment is to be preferential on retirement, it will need to be capable of being objectively justified to avoid potential claims of unlawful age discrimination from younger leavers who are treated less favourably.

Tribunal Compensation

Compensation for financial loss in an unfair dismissal or unlawful discrimination claim is based upon the employee’s actual and likely future loss of earnings. There are of course a number of variables with regard to the eventual level of compensation awarded by a tribunal in an unfair dismissal case, reflecting issues such as the duty to mitigate loss by using reasonable efforts to obtain alternative employment, any reduction by the tribunal to reflect contributory fault on the part of the employee, any adjustment to compensation to reflect unreasonable breach by either party of the provisions of the 2009 ACAS Code on Disciplinary and Grievance Procedures, and any reduction to reflect the percentage chance that the employee would have been dismissed in any event had a fair procedure been followed. The cap on the unfair dismissal compensatory award of £68,400 may also come into play. Nonetheless, because of the DRA, schedules of loss produced by claimants for the purposes of tribunal proceedings have generally assumed that employment would cease at 65, thereby setting a natural ceiling on the compensation sought.

The abolition of the DRA will remove the ceiling, regardless of whether the claim is for discrimination or for unfair dismissal. An employee’s prospective loss will now no longer automatically come to an end at the age of 65 (or indeed at any other age as a consequence of retirement) unless an “employer justified retirement age” can lawfully be established in respect of the claimant in question. As a result of this, but depending of course upon the particular circumstances of the claimant and the claim, the amounts sought by way of schedules of loss, and indeed compensation awards themselves, may increase to reflect the longer period for which compensation may now in principle be sought. This may be as a result of compensation being sought for a period of unemployment beyond the age of 65 or ongoing loss by way of reduced earnings in respect of that period. Employers therefore need to be aware that the abolition of the DRA may have the additional consequence of increasing employees’ expectations in respect of employment tribunal awards and indeed the level of those awards themselves

Abolition of Right to Refuse Vacancy to 64½ year olds

The rule which allowed employers to refuse to offer vacancies to applicants aged 64½ years or over has also now disappeared. Employers will have to objectively justify any such maximum recruitment ages.

Further Information

The ACAS guidance “Working without the default retirement age” can be found on the Acas website ( The Department for Work and Pensions (“DWP”) has also produced guidance booklets, “Workforce management without a fixed retirement age” and “Good practice case studies: Managing without a fixed retirement age”, which can be found on the DWP website (