05/08/2010

Employment E-Brief- changes to the Default Retirement Age

The likelihood of more employees following in the footsteps of Bruce Forsyth (aged 82) and Sir Alex Ferguson (aged 68) in continuing to work beyond 65 may well become a reality, with the Government’s proposals to ‘consign the Default Retirement Age to the history books’ in October 2011.

The concept of a Default Retirement Age (DRA) was implemented by the Employment Equality (Age) Regulations 2006, given statutory effect to the long established retirement age. The Regulations allow employers to compulsorily retire employees once they reach the age of 65, without having to justify their actions or pay any form of compensation provided that they follow the set procedure and issue retirement notices to employees six months before retirement. Requests to work beyond retirement age must also be considered, but can be declined – and there is no legal obligation to provide any reasoning.

The new proposals include:

  • Phasing out the DRA from April 2011, with a total abolition from October 2011;
  • Removal of all statutory procedures, including retirement notices;
  • Permitting retirement dismissals after October 2011, but only where ‘objectively justified’
  • Transitional arrangements will apply to retirements that have been notified before 6 April 2011 to take effect before 1 October 2011.

Whilst the benefits for employees seem clear, employers are left with an array of implications to consider, not least the relatively short period of time before the changes are proposed to come into effect.
On a positive note, they will be able to avoid losing long-serving, experienced staff and thereby also escape recruitment and training costs. That said, succession planning arrangements will need to be reviewed as employees may expect to stay in their jobs (potentially) for much longer.

However, employers also face having to adopt an entirely new approach to workforce management, with curbs upon the degree of certainty and planning they presently enjoy. Policies and procedures, such as those relating to flexible working, will need to be rethought. Care will need to be taken to ensure that dismissal of employees aged 65 or over is for valid non age-related reasons, such as poor performance, as is the case currently for employees under the age of 65.

The provision of insured benefits cover for older employees will need to be considered; at present, it becomes progressively more expensive (and sometimes impossible) to provide insured benefits such as medical insurance and group income protection to employees over the age of 65. Other provisions will also need to be looked at such as company pension arrangements where it may become standard to work beyond 65; ‘good leaver’ retirement provisions and the definition of “retirement” in share incentive arrangements.

The process during which an employer engages with staff to arrive at a retirement age will need to be approached with care. The Government has proposed giving general guidance or a ‘more formal Code of Practice’ and this may well offer guidance in terms of negotiation.

Importantly, there is the potential for an increase in litigation within this area (possibly on a large scale), for instance in relation to the ‘objective justification’ imposition and its possible interpretations. There is no doubt that employers will have a tougher time in trying to objectively justify their own company-specific retirement age and it is also more likely that employees will be prepared to argue that a company retirement age is age discriminatory.

The period of consultation is open until 21 October; until then, employers have their chance to try and make their views and ideas heard.

For further advice on employment matters, please contact Philip Paget or another member of the Employment Team.