Cancel your order for carriage clocks and other retirement gifts because time has been called on the default retirement age (DRA). The Department of Business, Innovation and Skills has confirmed that the current DRA of 65 will be phased out from 6 April 2011 and will be abolished on 1 October 2011. The last date on which employees can be compulsorily retired using the DRA is 30 September 2011. This means that the last date on which an employer can provide the six months' notice required by the default retirement provisions is therefore 30 March 2011.
It has long been recognised that people are living longer and consequently need to work for longer in order to save for retirement. In 2008 16% of the population was aged over 65, but this is predicted to rise to 23% by 2033. Removing the DRA is seen as a way of encouraging people to work for longer and save for retirement.
What will happen during the transitional period?
During 2011 there will be a six month transitional period between 6 April and 1 October so that retirements which are already in progress can continue through to completion, provided that:
- The notification of retirement is issued prior to 6 April.
- The date of retirement falls before 1 October.
- All requirements of the statutory retirement procedure have been met.
This means that if notification of retirement is given to an employee prior to 6 April 2011, but with a proposed retirement date of 5 October 2011, this will not count as a dismissal for reason of retirement under the DRA provisions and will be discriminatory unless it can be justified. Some employers might already have commenced retirement procedures with staff and may wish to revisit those and ensure that the proposed retirement date falls before 30 September 2011.
Although the last date for providing the six months' notice required by the default retirement provisions is 30 March 2011, employers can still use the DRA until 5 April 2011 if they use the short notice provisions (provided that the last effective date for termination of employment is 30 September 2011). However, employers should be aware that if the short notice provisions are used, then an employee may claim compensation of up to a maximum of eight weeks' pay..
Employer justified retirement age
Employers will no longer be able to regard 65 as the "safe" age at which to retire employees. If an employer chooses to abandon a fixed retirement age then it will have to justify its decision to retire particular employees on a case by case basis. However, it may still be possible to lawfully retire employees at a set age, provided that the retirement age can be objectively justified (sometimes referred to as the employer justified retirement age, or EJRA). The employer has to be able to show that:
- A real business need (i.e. a legitimate aim) is being met.
- Having the EJRA meets that aim.
- It is proportionate to use that EJRA as a means of meeting that aim.
Examples of what will constitute a "legitimate aim" are workforce planning (the need for businesses to recruit, retain and provide promotion opportunities and effectively manage succession), the health and safety of individual employees, their colleagues and the general public (i.e. in relation to air traffic controllers), or the physical requirements of the job (i.e. in relation to the emergency services). An employer will need to be able to provide evidence, if challenged, to support its belief that the three criteria above were met.
At this stage, it is difficult to predict how the courts will decide whether an EJRA is in fact justified, however, much will depend on the facts of a particular case.
Retirement discussions with employees
In future, there will no longer be an immediately obvious point at which to have a discussion with older workers about their future plans and when they intend to retire. Many employers may fear that even initiating any such discussion will be perceived as discriminatory in itself. ACAS recommends the following when conducting workplace discussions about an employee's future plans:
- Such discussions could be built into the appraisal system and should be conducted at least annually.
- Questions which could be seen as being discriminatory should be avoided e.g. suggestions that the employee is blocking younger workers from progressing.
- Open questions should be asked about the employee's future plans for the short, medium and long term.
Employees aged 65 and over have been able to bring unfair dismissal claims on grounds of compulsory retirement since October 2006, however the impact of this has not yet fully been felt since those who were retired at the DRA using the correct procedure have not been able to claim that their dismissal was unfair or discriminatory. With the abolition of the DRA, claims for direct or indirect age discrimination are likely to increase. Employers therefore have an even greater incentive to give proper consideration to the question of whether someone should retire or continue working.
Consider the following key action points:
- Identify any imminent retirements and whether they are validly covered by the default retirement procedure. Where new retirement notices are being given, any notices of dismissal must take effect on or before 30 September 2011.
- Note that 5 April 2011 is the last day on which notices of dismissals under the default retirement procedure may be issued using the short notice provisions and 30 March 2011 is the last day when the full six months' notice may be given.
- If any retirements that have been planned or set in motion fall outside the default retirement procedure (because the dismissal will not take effect before 30 September 2011) these should be revisited. This may entail postponing the retirement altogether or retracting the letter of dismissal.
- If necessary, amend the fixed retirement age specified in the contract of employment or operated as a matter of practice. If keeping a fixed retirement age, consider what objective justification there is for this.
- Post 30 September 2011, retirement will no longer be a potentially fair reason for dismissal. One of the other potentially fair reasons will have to be relied upon, for example, capability or SOSR (some other substantial reason).