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In this article, Liz Wilson of Beachcroft LLP considers the implications of the planned abolition of the default retirement age.
On 13 January 2011, the Government confirmed that its proposal to abolish the default retirement age (“DRA”) will go ahead on 1 October 2011. From this date (and other than in the limited transitional situations outlined below) employers will no longer be able to force an employee to retire simply because they reach age 65 or more. It will only be possible for employers to operate a compulsory retirement age where they can ‘objectively justify’ doing so. While this may be possible (if difficult) in relation to a limited range of specific roles, it is highly unlikely that a compulsory retirement age for all staff will be justifiable in practice.
Effecting Compulsory Retirements Before the DRA is Abolished
The current statutory retirement regime requires that 6-12 months notice of compulsory retirement is given to employees. To comply fully with the statutory procedure and avoid compensation claims, employers will need to ensure they have given the minimum 6 months’ notice to any employee who is to be compulsorily retired and who reaches age 65 (or normal retirement age) on or before 30 September 2011.On the face of it, the Regulations do not permit retirements between 6 April and 30 September, unless the individual turns 65 in that period. This is plainly an error and we will report further when the position has been clarified.
Those responsible for the Regulations at BIS are aware of the concern that the drafting error has caused and are dealing with it as a matter of urgency.
In recognition that some employers like to give up to the maximum 12 months notice under the current regime, employers will have the option of setting the retirement date at any time up to 4 April 2012, provided that 6-12 months notice is given and notice is issued by 5 April 2011.
This is not a big concession, given that the employee must still have turned 65 (or reached the employer’s normal retirement age by 1 October 2011) but it will give employers some flexibility in when they choose to require employees to retire. For example, an employer in the retail sector, expecting a peak period through December and January, will now be able to retire employees over 65 after the Christmas period but before the end of the tax year.
What is not clear (and should be clarified before the Regulations are brought into force on 6 April 2011) is how the Regulations will affect the position where an employer has already started the retirement procedure, for example in relation to someone already over 65, to impose retirement to take effect on a date after 1 October 2011.
Implications of the Abolition of the DRA.
One short term implication of the change is that employers should amend contracts of employment of existing staff, perhaps by way of a variation letter, to confirm that the DRA will no longer apply. (Plainly this needs to be sensitively timed if the employer is also exercising its right in the short term to retire those reaching 65 before 1 October). In particular, employers will want to ensure that those wishing to retire voluntarily are contractually obliged to serve full notice in the usual way (to ensure that there is adequate time for handover of duties, succession planning and the like). Failure to amend contracts or any associated policy may give rise to the perception that the employer has an inherently discriminatory attitude and wishes to encourage staff to retire at a particular age.
From 6 April 2011, it will no longer be lawful to refuse to recruit an individual on the grounds that they are within 6 months of 65 or any other normal retirement age. This means that recruitment criteria being applied after 5 April 2011 should not include any “cut off” age and older applicants must be considered on merit alongside other applicants.
In the longer term, the removal of the DRA will raise practical issues for employers both in managing the older worker and across the workforce more generally, for example when looking at succession planning, performance management and ensuring consistency and fairness in policies and practices. In each case, the employer must consider whether there is a legitimate aim to any planned procedure or policy that adversely affects some age groups and must go on to consider whether the planned action is a proportionate means of achieving that aim. This process will require a clear understanding of the aims of decision making and detailed analysis of the potential impact. It is essential that older workers are not treated differently where such treatment is unjustified, eg performance managing those in their 60’s more stringently than those in their 40’s and 50’s.
Of course, it is not only the strength of the employer’s justification but also the employee’s perception of the employer’s actions which will be of vital importance in avoiding very costly discrimination claims.
Tricky issues that can be anticipated include how to address performance management and how to broach the question of retirement without creating an impression that the employer intends to discriminate.
ACAS has issued guidance to employers providing tips which will be of assistance in addressing some of these knotty problems. Unfortunately this guidance is necessarily general in nature and does not provide a clear framework for employers who may have legitimate grounds for seeking to retire particular employees, for example because their role requires a very high degree of physical fitness. Employers will need to develop their own strategies for addressing these issues over the next few months (with some assistance from existing case law precedent).
Whatever strategy is adopted it is clear that line managers will need support and training to understand the company’s obligations and to proactively address issues where they arise.
On a positive note, employers have generally welcomed the government’s confirmation that it will introduce an exemption to the age discrimination rules which will permit employers to limit group risk insured benefits (such as income protection, life assurance, and private medical cover) to employees aged under 65. There had been concern that removal of the DRA could lead to businesses withdrawing these benefits across the entire workforce to avoid increased costs.
The position for those employers who offer these benefits on a self insured basis is less satisfactory. However, as no exemption is made for self-insured arrangements and the expectation is that these employers will have to objectively justify the withdrawal of such benefits at any given age.
The Government has not given clear guidance on the position regarding pension contributions. Employers concerned about whether or not pension contributions must be funded for staff over the age of 65 must examine their contractual arrangements and the terms of the relevant pension scheme in order to assess their obligations.
The prospective cost to employers of the removal of the DRA will vary considerably, depending on the nature of the organisation and the industry, age profile of the workforce and adequacy of pensions provision. In addition, the lack of a clear framework for dealing with potential retirement dismissals means that the management of these cases will require a significant time commitment on the part of individual line managers with guidance from Human Resources.
The timetable for implementation is extremely tight and if employers are to start making the transition from March/April 2011 there is very little time to prepare for the significant changes which the new regime will bring. Whilst there is some guidance available from existing case law, draft regulations issued by the Government and the ACAS guidance referred to above, there are some issues on which we will not have definitive guidance until the first cases under the new law are decided.
