This move has created much debate among small businesses, fuelled by the recent age discrimination case won by Miriam O'Reilly against the BBC. The high profile case has thrown the issue of age awareness into high relief.
At the moment, employers can compulsorily retire an employee at the age of 65.
Sue Evans, partner at law firm Lester Aldridge explains: "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 their last working day."
Individuals can request to work beyond the specified retirement date, but employers are not obliged to agree to their request.
This means that even if your employee is fit to work and willing, you can enforce the retirement providing you follow the procedure set out by the regulations.
From April 6, 2011, employers will not be able to follow this compulsory retirement procedure.
Instead, you will only be able to retire an employee lawfully if it can be 'objectively justified' under the discrimination legislation. This is a likely to create a heap of red tape for small businesses. You could face an age discrimination claim if you compulsorily retire any employees and they contest your decision.
Opinions are very mixed on this issue. Small business owners fear the red tape and lack of flexibility. The CBI has made no bones about its views: John Cridland, director general, says: "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".
Critics of the move have also complained that three months is not enough time for businesses to put in place new procedures.
But there are obvious benefits to this decision. Dr Helen Barnes, Principal Research Fellow at the Institute for Employment Studies, says: "The abolition of the default retirement age is no more than natural justice when state pension age is being raised; otherwise many people would be left in limbo, forced to leave work but unable to claim state pension.
"Older people face age discrimination in recruitment and anything which can help older people stay in the labour market has to be a good thing."
Brian Luff, chairman of technology solutions firm Critical Software, agrees. "It would seem to make sense to allow people to work longer if they so wish. A statistic that was quoted recently provides a good example of the ageing of the population: of those alive today, one in six has a reasonable expectation of living to the age of one hundred. If retirement expectations don't change in response to this demographic shift then pension provisions, which are already reckoned to be inadequate, will have to be eked out even longer."
Ultimately, the big winner from the abolishment of the default retirement age is government. "It will assist the pension deficit faced by the government if people are working longer and consequently contributing rather than drawing pension," says Lester Aldridge's Evans.
"Recent figures show that the Government could save £3.5 billion pounds for every year the pension age is increased," adds Beatrice Bartlay, founder of £4.2m-turnover staffing and recruitment firm 2B Interface.
But Bartlay sees the situation as ultimately win win. "The retirement age of 65 was only introduced five years ago to protect people from being forced to retire early but it has actually seen those who want to work well into their 60s and early 70s into forced retirement against their wishes."
"It would be unfortunate if people who have planned properly for retirement come under pressure to work longer simply because some goalposts had been moved," says Critical Software's Luff. "And we already have a mismatch between labour supply and demand. If people near the end of their careers hang on longer, that would tend to limit the prospects of the young.
"Looking at the question purely from the perspective of an entrepreneur or business owner, one would not wish to lose talent for no better reason than time ticking on... It's hard enough to retain talent as it is."
HR expert Kate Russell outlines another problem: "Age is an emotive area and there will be those employees who simply won't accept that they are no longer competent, or are not sufficiently competent and employers will have to dismiss them on grounds of capability. This may poison the last months of many working lives and I predict it will lead to a significant increase in tribunal applications."
Russell also echoes Luff's comments on the succession issue, saying: "We're all familiar with waiting for "dead men's shoes". This may mean that good employees seeking to progress their careers will have to move on to get the advancement they want. I am not persuaded that the ramifications have been fully understood, but yet again, employers will bear the brunt of the Government's good works"
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