Compulsory retirement: The default retirement age is out. Here's what small businesses need to know about the new state of play
Sue Evans, partner at Lester Aldridge,
outlines the new HR landscape for small businesses in the wake of
the abolition of the default retirement age. Here's what you need
to know about the new regulations - and how the end of compulsory
retirement will effect you.
As proposed by the Government in July last year, the Department
for Business, Innovation and Skills has confirmed that the default
retirement age (DRA) will be abolished from October 2011. It means
that employers will no longer be able to dismiss staff just because
they have reached the age of 65.
Presently, it is possible for an employer to compulsorily retire
an employee at the age of 65 provided they carefully follow the
required procedure. The right was first introduced in 2006, with
the intention of protecting people from being forced to retire
The Age Regulations provide for a DRA of 65. At (or above)
this age, an employer can commence the statutory procedure for
retirement. The employer must serve a notice on the
individual employee specifying their intended retirement date -
this must be done at least 6 months but not more than 12 months in
advance of the intended retirement date.
Although the individual can then request to work beyond the
intended retirement date, as an employer you are not obliged to
agree to their request.
Provided you follow the procedure set out by the Regulations,
the retirement dismissal would be fair and you would be protected
against claims of unlawful age discrimination in respect of the
The removal of the DRA was first proposed by the coalition
government in July last year.
The changes mean that from 6 April
2011, employers will not be able to issue any further
notifications for compulsory retirement following the current
Between 6 April and 1 October, only those people who were told
before 6 April, and who are due to retire before 1 October, can be
compulsorily retired using the DRA procedure.
Once the default retirement age is phased out, an employer can
continue to have a compulsory retirement age. However, you will
only be able to retire an employee lawfully if it can be
'objectively justified' under the discrimination
legislation. This is a much higher burden on employers who will
face the risk of an age discrimination claim if they compulsorily
retire any employees.
An exemption is going to be introduced for group risk insured
benefits (for example medical insurance), where there was a concern
that employers would stop offering such benefits to all/any
employees if it became too expensive to pay the premiums. These
benefits will be exempt from the principle of equal treatment on
the grounds of age, so that it will remain possible for employers
to stop providing these benefits once a worker has reached 65, even
if he or she continues to work beyond that age.
Views as to the default retirement age are particularly
polarised with employers' groups concerned about the loss of
flexibility for employers in terms of workplace planning and others
being concerned about the ability of an employer to essentially
force an employee to retire when they may want to continue
The CBI has been particularly outspoken in its opposition,
describing the move as "too little, too late". John Cridlan,
director general designate, said the Government's decision to scrap
the DRA leaves businesses with a number of difficult practical
issues. He said "there is not enough clarity for employers on how
to deal with difficult questions on performance. The Government has
not recognised the fundamental question, which is how employers
manage retirement on the basis of a performance appraisal".
ACAS has published guidance for employers on "Working without
the Default Retirement Age", which focuses on the practice of
handling retirement discussions. This is a welcome step, although
some critics are concerned that less than three months is not
enough time for businesses to put in place new procedures.
What does this mean for your business?
- Support line managers - From a
corporate perspective, it is important to ensure that line managers
have the support they need to be able to evaluate the needs of the
business and as a consequence assess the workforce
- Review your workforce - Are any of
your employees approaching, at or beyond their 65th
Use the transitional period as a window to review your workforce
and commence compulsory retirement procedures where appropriate -
ensure that you carefully follow the statutory procedure!
- Intended date of retirement - If you
intend to retire any employees after 6 April 2011 (or if you issue
the notice of retirement before this date but the intended date of
retirement is after 1 October 2011) you will need to be able
to objectively justify the
retirement age as a proportionate means of achieving a legitimate
- Plan for workplace discussions - set
up a procedure to allow you to have sensible and transparent
discussions with your employees about their career and work
expectations throughout their working lives. These
discussions should not be limited to younger or older
It is hoped that the removal of the DRA will benefit thousands
of people who otherwise would be at risk of being forced into
retirement, and is in line with the fact that people are living
longer and healthier lives. It will also assist the pension
deficit faced by the government if people are working longer and
consequently contributing rather than drawing pension.
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