The abolition of the default retirement age

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The legislation governing the retirement age is changing. David Regan, a solicitor in the Employment Team at Mundays Solicitors, discusses the implications of the abolition of the default retirement age.

The question of how to deal with older members of staff, particularly those who have worked for a business for a long time, is a difficult one for managers. At present, employers must follow a fairly strict retirement process which penalises them for failing to comply, but which does allow them to choose to retire an employee without the employee having any say in the matter. With effect from 6 April 2011, this process will begin to fall away and, from 1 October 2011, it will be age discrimination to dismiss someone by reason of retirement.

Alternatives to the default retirement age

1. Speak to the employee ‘off the record’. Whilst this option is tempting, trying to speak with an employee ‘off the record’ is fraught with difficulty. In brief, simply saying this conversation is ‘off the record’, or ‘without prejudice’, does not mean that the employee cannot use the conversation against the employer.

2. Speak to the employee ‘on the record’. It may make sense for employers to discuss future plans with all employees at appraisal time, as this will give the employer a better idea of who is looking for advancement, who is happy within their role, who is considering retiring, and plan accordingly.

3. Keep a close eye on performance. Many employers are concerned that the change in law means that they will be stuck with staff members who cannot perform and who cannot be retired. This is not the case. In fact, under the new law, employers will have to keep a closer eye on who is performing well, and manage all employees’ performance equally.

4. Set a corporate ‘normal retiring age’. Contrary to popular belief, employers will still be able to set a ‘normal retiring age’ for employees. Although this will be age discrimination, this will be justifiable if the decision can be shown to be a proportionate means of achieving a legitimate aim.

Difficulties

Succession planning

The most obvious difficulty for employers will be that there is no longer a ready-made timetable for retirement, meaning the path to senior positions could be blocked. Employers may also feel unable to ask when an employee is intending to retire, leading to ‘shock’ retirements that leave the employer without a proven successor.

Employee relations

Employers may also find it difficult to start discussions about retirement with employees as detailed above. Even if they do, many employees may not take kindly to the idea that they should retire if they are not ready to do so.

What is a ‘legitimate aim’?

Cases under the ‘old law’ have found legitimate aims to be workforce planning, enabling recruitment and retention of younger employees, avoiding adverse impact on pensions and benefits, ensuring continued competence, and having an age balanced workforce ensuring job opportunities amongst the generations.

Flexible working

In practice some employers may be happy to allow an employee to continue working as long as they choose, and many employees will most likely want to at least reduce their hours, if not finish working completely, as they age. It is important to note that the abolition of the default retirement age has no effect upon the flexible working law which is currently in place, and employers will not be under a duty to allow older employees to work reduced hours unless they are eligible for flexible working in the usual way.

Performance management

Managers must ensure that performance management processes are implemented fairly across the entire range of employees in order to avoid any accusations of age bias.

Exceptions

There are two exceptions to the abolition of the default retirement age:

1. It does not affect occupational pension schemes and the setting of a “normal retirement age” for the purposes of occupational pension schemes.

2. Employers may withdraw benefits for employees at or over the age of 65 (with the age at which withdrawal will be legal rising in accordance with the state pension age). This exemption deals with a key concern of employers, namely that the rising costs of benefits and insurance for employees over the state pension age could make the provision of these benefits prohibitively expensive.

Conclusion

The abolition of the default retirement age has the potential to have a large impact on businesses, as staff may choose to remain in their position longer, hindering succession planning, and employers and managers will be forced in many cases to invoke disciplinary procedures to manage the performance of longstanding employees, with a subsequent negative effect on morale. However, where there is clear ongoing dialogue between managers and staff, and all parties are open to sensible communication, there is no reason why employees continuing to work past the current default retirement age should prove to be a problem.

In addition, employers are still free to choose to set a retiring age for their business, provided that they are able to justify this.

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