Abolishing the Default Retirement Age

David Murphy answers questions about the Government’s plan to abolish the default retirement age.  Read below and let us know what you think by answering our short survey.  We are contributing to the Government’s consultation and will let them know your views!  Your response will be completely anonymous. 

1.    I’ve been away on holiday, what’s this I hear about the Government scrapping the retirement age?
The Government is going to phase out the default retirement age (“DRA”) which currently enables employers to dismiss employees when they hit 65.

2.    Why are they doing this?
A number of reasons have been given: people are living longer; the financial benefits to employees and the country as a whole; the health and social benefits of work (yes, work is good for you!); and that retirement should be a matter for employers and employees to determine rather than the state.

3.    When is it all happening?
From 6 April 2011 no new notices of retirement under the statutory retirement process may be issued and from 1 October 2011 employers will not be able to rely on the DRA to dismiss employees. 

4.    So, do we have to scrap our company retirement age too?
No.  However, if you continue to have one you will need to be able to justify having one (or to use the legal jargon, show that having one is a “proportionate means of achieving a legitimate aim”). 

For some occupations (e.g. air traffic controllers or fire-fighters) this may be easier than others.  A recent case about the forced retirement of a partner in a law firm (Seldon v Clarkson Wright & Jakes) gave some hope to employers that they may be able justify having a company retirement age.  In that case a retirement age of 65 was found to be a proportionate means of achieving the legitimate aim to provide “employment prospects for young people and encourage young people to seek employment by holding out good promotion prospects” and to produce “a happy work place”.  However, that case was decided against the backdrop of the DRA (which applies only to employees, not partners) and such justification may be more difficult once the DRA is abolished.  Many companies may be reluctant to have a retirement age given the potential burden of having to justify it to an employment tribunal if it is challenged by an employee.

5.    If we scrap our company retirement age, aren’t we going to be stuck with employees for life?
No, they may want to leave of their own accord to retire voluntarily or to go to work elsewhere and as with all employees there will still be scope to dismiss employees on grounds of capability, conduct, illegality (e.g. no right to work in the UK) and redundancy.

6.    We’ve got a couple of employees coming up for retirement, what happens to them?
If they turn 65 before 1 October 2011 and you give them notice under the statutory retirement process before 6 April 2011 then you can rely on the DRA (assuming you follow the rest of the process too).  If not, you cannot rely on it and you will either need to retire them under a company retirement age (one which you can justify), allow them to continue in employment or find a fair reason to terminate their employment.

7.    It sounds like a minefield.  Is there going to be any advice on what we can and cannot say?
The Government is consulting on its proposals and has asked what advice would be helpful to employers.  Two possibilities are on the cards: a statutory code of practice (including guidance) and formal guidance on how to discuss retirement.  Which would you prefer?  Tell us.

8.    What about the benefits we provide?  What about the good leaver “retirement” provisions in our incentive schemes?
The Government has recognised that abolishing the DRA may have certain unintended consequences, including difficulties for employers in knowing whether they can impose age limits or conditions on insured benefits schemes (such as private medical cover) and being able to ascertain if someone is a voluntary leaver or retiring for purposes of determining whether they are a “bad leaver” or a “good leaver” under incentive schemes.  Do you see this being a problem for your organisation?  Let us know.

9.    Is it definitely happening?
The Government is consulting on its proposals until 21 October 2010.  However, the focus of its consultation is on how to implement its plan, rather than on the plan itself.  The Government has been quite clear that it is a question of “when” rather than “if”.  Fox Williams is contributing to the Government’s consultation in the hope that the Government addresses the problem areas beforehand and provides clarity for employers as to the “dos” and “don’ts” once the DRA is abolished.

10.    What can we do to prepare for the change?

• If you want to have a company retirement age going forward, think about whether you can justify it and the precise basis on which you will do so.
• If you decide not to have a company retirement age then it is likely that good management of all employees’ performance will become more important.  Consider whether you need to train managers on how to communicate and manage performance issues better.  In our experience, many managers shy away from doing so and this can make dismissing on performance grounds more difficult.
• Finally, let us know what you think.