On 13 January 2011 the Government confirmed that the default retirement age ("DRA"), currently 65, will be abolished from 1 October 2011. This may well have a deep impact on the employment landscape but there is some light on the horizon in respect of insured benefits and pension schemes.

First, the dramatic news!! The last day on which you can serve the required 6 months' statutory notice on those employees who are 65 or over is 30 March 2011.

Now this is very important. You will not be able to issue notices terminating employment by reason of an employee having reached the DRA from 6 April 2011.

Between 30 March and 5 April 2011, you can issue DRA notices provided that:

  1. you use the short notice provisions allowed under the DRA, but this will entitle employees to claim up to a maximum of 8 weeks' wages by way of compensation;
  2. the date of retirement falls before 1 October 2011;
  3. the DRA procedure, as set out in the Employment Equality (Age) Regulations 2006, is followed correctly, including the employee's right to request to stay on being given consideration by you; and
  4. the other requirements of the DRA procedure are met - for example: the employee is 65 or over, or the employee has reached your normal retirement age if this is higher than 65.

The provision under the 2006 Regulations allowing short notice of retirement will be scrapped on 6 April 2011.

So, after 6 April 2011, what is this aspect of the employment relationship going to look like? Here is some food for thought:

  • "Retirement" will no longer be a freestanding 'fair' reason for dismissal under employment legislation. You are going to have to show that the retirement dismissal was fair for 'some other substantial reason' and that you followed a fair procedure (bearing in mind that there will no longer be any fixed statutory retirement procedure).
  • 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, i.e. that the dismissal on this ground arises from a legitimate aim and it is an appropriate and necessary means of achieving that aim. 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.
  • 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 ACAS guidance (more of which below) suggests that such discussions could be incorporated into the appraisal system and should be conducted annually. This still means avoiding asking direct questions which could be seen as discriminatory, but by asking open questions about all employees' short, medium and long-term plans then this could more safely lead into 'retirement planning' conversations.
  • 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 - whoop, whoop! (That's the good news by the way).
  • 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.

ACAS has produced guidance which can be found here: http://www.acas.org.uk/CHttpHandler.ashx?id=2976&p=0

In terms "What now?" here is 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; (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); (5) watch this space as we will keep you up to date with future developments as and when they occur!