Currently employers are able to dismiss employees by reason of retirement on or after their default retirement age (usually but not always 65) without exposure to compensation for age discrimination or unfair dismissal.

Age discrimination laws introduced in 2006 retained a special exemption which allowed an employer to retire an employee at its default retirement age (usually but not always 65) provided that a required procedure had been followed (the "Mandatory Retirement Exemption").

The new coalition Government has announced that they will abolish the Mandatory Retirement Exemption later this year.

Confusingly for employers, whilst the Mandatory Retirement Exemption is to go, employers may still be able to operate a blanket mandatory retirement rule. However, rather than relying upon a clear statutory exemption, they will instead need to prove that: (a) mandatory retirement at the age in question is objectively justified as being a proportionate means of achieving a legitimate aim; and (b) that the dismissal was fair in all the circumstances. At the time of writing the final statutory provisions have yet to be published and the leading domestic authority may be subject to an appeal to the Supreme Court, which means that employers who wish to continue with mandatory retirement ages should take specific legal advice on a case-by-case basis.

Significantly the change does not mean that employees will be compelled to work on but means that they will not be forced to leave employment before they are ready. The Government intends that the majority of employers will instead reach agreement with employees about retirement dates and, if this is not possible, employers will have to manage out poorly performing older workers.

As part of the review, the Government has recognised the disproportionate costs associated with providing certain insured benefits (such as life assurance) to older workers and has announced that it will introduce an exception to the age discrimination legislation allowing employers to specify a maximum age of 65 for participation in certain insured group risk benefits. Legislation is awaited.

Employers should act now to review the age profile of their workforce before the changes take effect.