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.

The past

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 early.

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 dismissal.

The present

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 procedure.

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.

The future

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.

Concerns

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 working.

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 requirements.
  • Review your workforce - Are any of your employees approaching, at or beyond their 65th birthday?

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 aim.
  • 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 employees.

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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