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Home | News & events | Legal updates | Age: A concern? End of compulsory retirement from October 2011

Age: A concern? End of compulsory retirement from October 2011

02 August 2010

The Government has confirmed it is to abolish the default retirement age of 65, which currently allows employers to force employees to retire at that age.

Since the Employment Equality (Age) Regulations 2006 came into force it has been unlawful to discriminate against employees on the grounds of their age. 

However, an important exception to this general position means that employers can still require employees to retire once they are 65 (the ‘default retirement age’). 

As long as an employer follows the retirement procedure correctly, an employee cannot bring any legal claim against their employer for forcing them to retire. 

Although employees can request to carry on working under the retirement procedure, there is no obligation on employers to grant such requests and they do not have to give any reason for refusing a request.

All this is set to change next year. Despite the courts previously holding that the default retirement age was lawful, the Government appears to have bowed to pressure from age charities and recognised that demographic changes together with the financial, health and social benefits for older people who remain in the workforce now justify a change to the law.

A phasing out of the default retirement age will start on 6 April 2011, when the retirement procedure will be abolished: no new notifications of retirement will be able to be given after this date. 

Where employees have been notified of their retirement date before 6 April 2011 any such retirement must take effect by 1 October 2011: the default retirement age will be abolished from that date.

Employers will still be able to dismiss older employees for one of the potentially fair reasons set out in the Employment Rights Act 1996, such as on the grounds of conduct, redundancy, capability or for some other substantial reason. However, if the dismissal is not to be unfair this must be a genuine reason for the dismissal and the employer must follow a fair procedure.

After 1 October 2011, when the default retirement age goes, employers will have a choice: they can either abolish retirement ages in their organisation altogether or keep a retirement age that they can objectively justify. 

Objective justification will involve showing that the retirement age is a ‘proportionate means of achieving a legitimate aim’.  Very broadly, this will involve showing a sound business reason for the retirement age chosen and an employer will need solid evidence to back up its argument rather than merely making unsubstantiated assertions about the desirability of the retirement age.

Employees are undoubtedly the winners from this announcement. Where organisations abolish retirement ages employees will effectively have a choice about whether to retire or not after 1 October 2011. 

The end of a universally accepted retirement age will require a cultural shift away from the ‘cliff-edge’ of retirement at 65 and will perhaps lead towards people looking for different work and working patterns as they get older. It remains to be seen, however, how easy it will be for employers to accommodate all such requests.

While giving individuals the choice about whether they retire will seem like a positive step to many, this development will have significant consequences for employers trying to manage their employees.  Adequate communication between employer and employee is likely to be the key to success for employers grappling with these difficulties.

However, serious issues remain to be resolved. For example:

• If an employer decides to abolish its retirement age, how will workforce planning, recruitment and succession matters be handled if there is no certainty about the date at which someone will retire?
• The Government is considering at what date the State pension age will rise to 66. This is likely to have an impact on employees’ attitude to retirement. In addition, where an employer has an occupational pension scheme it may wish to review the benefits and pension age in light of the abolition of the default retirement age.
• How will employers cope with the unattractive proposition of having to performance manage an employee who refuses to retire even though they are no longer delivering as required?
• How will employers ensure they continue to have an age balanced workforce? Will employers be faced with a backlash from more junior employees who see no prospect for their own promotion if senior employees carry on working?
• Where an employer does want to maintain a retirement age the concept of ‘objective justification’ is notoriously uncertain and ultimately can only be decided by an employment tribunal taking into account the specific circumstances of each case. Such uncertainty is unhelpful for employers who are unhappy about taking on extra legal risk.

All these issues and more are likely to play out in practice and, no doubt in the tribunals, over the coming years.

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

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Kevin McCavish

Partner
T: 03700 86 8802
I: +44 (0)118 965 8802
E: kevin.mccavish@shoosmiths.co.uk