In August 2010 we reported on the Government’s proposals to abolish the default retirement age.

The Department for Business, Innovation & Skills has now confirmed that the default retirement age will be phased out from 6 April 2011 and abolished from 1 October 2011.

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 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.  

When will the changes come in to force?

  • The Government intends to bring forward new regulations which will take effect from 6 April 2011.
  • For employees reaching the age of 65 on or before 30 September 2011 employers can dismiss the employee on the grounds of retirement provided notification of retirement is given before 30 March 2011.
  • Where an employee is due to reach the age of 65 on or before 30 September 2011 and notice has not been given before 30 March 2011 employers can issue a notification of retirement until 5 April 2011 using the short notice provisions. Remember though that an employee subject to short notice may be able to claim compensation of up to 8 weeks’ pay.
  • Employers cannot issue notifications of retirement for employees reaching the age of 65 on or after 1 October 2011.  

What will the changes mean?

Moving forward older employees may only be dismissed at a certain age where that age can be objectively justified. Employers wishing to go down this route however will need to carefully consider the reason for retiring employees at a set age, the evidence available to support that decision and whether there is an alternative, less or non-discriminatory way of achieving the same result.

Where an employee is under performing and their performance cannot be improved, perhaps because of their ill-health, employers will still have the option of dismissal on the grounds of capability. Employers will need to be careful though to avoid the stereotype of thinking that poor performance is associated with age. As with all other employees, employers will need to establish the reasons for poor performance, set improvement periods if appropriate and consider, for example, what adjustments, training or development would help the employee meet the expectations of the role.

ACAS guidance on working without the default retirement age encourages employers to continue to hold discussions with their employees to discuss their performance and future plans. Such discussions may include an employee’s retirement plans but it is important to ensure that any such discussions are conducted openly, consistently and without prejudice. As such, in order to ensure equal treatment, such discussions should be held with all employees regardless of their age.

Practical steps

As previously advised, clients are advised to review their current workforce and consider whether there are employees reaching the age of 65 on or before 30 September 2011 who could be issued with notice of intended retirement at some point before 30 March 2011 and, if so, whether they do wish to retire such employees. If so, clients should put the wheels in motion now.

Clients are also advised to now begin the process of reviewing their relevant policies and procedures for handling retirement issues. In particular, clients should consider in what circumstances, if any, for what reasons, for what staff, and at what age they believe they will need to effect compulsory retirement and take appropriate advice on their likely prospects of succeeding on justification arguments.