The government has decided to phase out both the default retirement age of 65 and the statutory retirement procedures.

This will potentially mark a major shift in employers' relationships with their older staff. Retirement legislation has effectively been toothless with employers only obliged to follow the correct procedure to successfully retire an employee. Since this is all set to change, this raises questions such as: do employers retire certain individuals now before the change? What will happen in respect of benefits for post-65 employees? Will retirement dismissals be replaced by performance-related dismissals? Etc. In this update we set out some further detail about the changes and some of the issues employers may want to start thinking about now.

Key dates and change arrangements

The government will abolish the default retirement age (DRA) with effect from 6 April 2011. Any dismissal because of age on or after 6 April 2011 will be direct age discrimination under the Equality Act 2010 unless it is covered by the arrangements for the change in the law (i.e. the transitional provisions) summarised below.

For a retirement to fall within the change arrangements the following conditions must have been met:-

  • The employer must have given notice of retirement before 6 April 2011;
  • The employee being retired must have reached the age of 65 (or the normal retirement age if this is higher) on or by 30 September 2011; and
  • All requirements of the statutory retirement procedure must have been met.

Assuming that the maximum period of 12 months' notice of intended retirement was given on 5 April 2011 then the last notice of retirement under the old rules will take effect on 5 April 2012, subject to any request to work beyond that date.

The draft regulations state that the last date on which an employee can request to work beyond retirement is 4 January 2012. Since an extension of more than 6 months requires a new notice of intended retirement date to be issued (which of course would, at this point, not be possible under the old regime), the last possible date on which any such extension could expire is 6 months after 5 April 2012, i.e. 5 October 2012.

Contractual retirement ages

If giving notice on or after 6 April 2011, employers will still be able to operate their own compulsory retirement age, provided they can objectively justify it as a proportionate means of achieving a legitimate aim, i.e. that a retirement age is an appropriate and necessary way of addressing the issue.

Some issues we suggest that employers may want to start thinking about now in respect of the removal of the DRA are:-

  • Will you be retaining a default retirement age or following the lead of B&Q, Sainsbury's, Marks and Spencer, BT, etc. and abolishing it?
  • Retirement dismissals may be discriminatory at any age. You will have to show objective justification for retirement dismissals. This is likely to be difficult and, by its nature (i.e. because a retirement dismissal is an age-related act), invite claims from disgruntled employees.
  • Without the DRA employers may have to start managing older employees out of the workforce for reasons such as poor performance. Will this mean that performance management procedures need to be tightened for all employees?
  • Employees in the run up to retirement may have been overlooked for promotion and training. Has this been an issue with your workforce and how will this be addressed in the future to stop age discrimination claims?
  • There will be no framework for discussing retirement. Initiating such discussions, whether they are regarding retirement or a change to an individual's working patterns may be perceived as discriminatory in itself. The guidance published by the Advisory, Conciliation and Arbitration Service (ACAS)1 suggests that such discussions could be incorporated into the appraisal system and should be conducted annually.
  • The Government has confirmed that there will be an exemption which allows you to withdraw benefits such as life assurance, health insurance and medical insurance for employees at or over 65. This will rise in line with the state pension age. Also, the scrapping of the DRA does not affect the setting of a 'normal retirement age' for the purposes of occupational pension schemes.
  • What about benefits that provide for different treatment dependent on whether someone is a 'good leaver' (which often includes retirement), such in respect of bonus, commission and share option provisions? Leaving such provisions in place may be helpful in persuading an employee to 'agree' to retire. However, if 'retirement' is by reference to a fixed retirement age and you decide to abolish that age then this could spell problems requiring the relevant documentation to be amended.

What now?

By way of a non-exhaustive 'To Do' list, you are going to have to:-

  1. Identify imminent retirements and check whether you can proceed without falling foul of the above changes;
  2. Look at your contractual documentation and decide whether default retirement ages will be abandoned and, if so, what impact this has on other matters such as benefits with 'good leaver' provisions;
  3. If retaining default retirement ages, consider what objective justification there is for this; and
  4. Look at performance management, appraisal and workplace discussion processes to assist managing an ageing workforce (although of course this should be done for all employees).