default retirement age
The bell tolls for the default retirement age
28 January 2011 (updated 15 March 2011)
The government has published draft regulations on the abolition
of the default retirement age (DRA) with effect from 6 April 2011.
Although there is some comfort for employers in relation to
insurance benefits, a great many questions remain unanswered.
Key points
Subject to parliamentary approval:
- the DRA can only be used for those who will have reached 65
before 1 October 2011
- the last day on which the six to 12 months’ notice of
retirement can be given under existing rules is 5 April
2011
- the last day on which an employee can request continued working
beyond the proposed retirement date is 5 January 2012
- following such a request, continued working may be agreed
either indefinitely or for a set period - if that period is six
months or less, the original retirement notice can still be relied
on
- employers may still operate a normal retirement age provided
that it can be objectively justified as a proportionate means of
achieving a legitimate aim (see below)
- the provision of group risk insured benefits (such as income
protection and medical insurance) will be exempt from the principle
of equal treatment on the grounds of age and can be withdrawn after
employees reach the age of 65 (this will rise in line with the
state pension age)
Example
Employee reaches age 65 on 24 September 2011. Employer has left
it too late to issue six months’ notice to expire on that date but
still has time before 6 April 2011. The employer will either have
to retire the individual after 24 September 2011, e.g. by giving
six months’ notice on 5 April 2011, or give short notice and face
having to pay the compensation.
Suppose they decide to issue 12 months’ notice on 5 April 2011,
the employee can make a request for continued working at any time
up to three months before that date (5 January 2012). If they do
so, and an extension of six months from 5 April 2012 is agreed, no
new retirement notice needs to be issued. So the last possible date
for retirement under the old provisions will be 5 October 2012.
Action required by employers
Review your policies on retirement to ensure they are in line
with the new law. If you wish to retain a normal retirement age,
consider if it can be objectively justified (see below). If not,
then remove reference to retirement age from policies and contracts
(though discriminatory terms of employment will be
unenforceable).
Consider if you wish to retire any employees who will reach age
65 before 1 October 2011. If you do, make sure the notice of
retirement is issued before 6 April 2011 and that the notice is at
least six months, and no longer than 12 months.
Review your performance management and capability procedures.
These are likely to become of increasing importance. If you have
held back from performance managing employees who are approaching
the age of 65, in the expectation of being able to retire them, you
may be in a position of having to start managing someone whose
performance has been unsatisfactory for quite some time. Particular
sensitivity will be needed if you have to start performance
managing employees whose performance was excellent earlier in their
careers.
Outstanding issues
Justifying a normal retirement
age:
A normal retirement age will be justified if it is a
proportionate means of achieving a legitimate aim.
The guidance available to employers who wish to retain a normal
retirement age is inadequate. The ACAS guidance 'Working without
the default retirement age' says that “case-law around [employer
justified retirement ages] will develop once the DRA has been
abolished.” So employers have to await the outcome of litigation
relating to other employers’ (or worse still, their own!) normal
retirement ages before having clearer guidance. The law should be
discouraging litigation, not making litigation the only way of
getting answers to key questions.
ACAS suggests normal retirement ages could be justified in
occupations which require exceptional “mental and or physical
fitness.” Employers wishing to justify a normal retirement age will
need clear and specific evidence, rather than just presumptions,
that:
- it will aid workforce planning, health and safety or some other
legitimate aim
- there is not another, less discriminatory way of achieving the
same result
Workforce planning:
Employers have long understood that enquiries about an
employee’s plans to start a family must be avoided to avoid an
inference of sex discrimination. One might think that the same
should be true for enquiries about intention to retire and age
discrimination. ACAS nevertheless suggests that employers can sound
out employees about their plans for retirement by asking about
their “future plans and aspirations” as part of appraisals and job
dialogues. But then “future plans and aspirations” may just become
euphemistic shorthand for “retirement plans,” particularly with
older employees. If employers are going to ask employees about
retirement plans, then we suggest all employees are routinely asked
– for example as a standard question in appraisals.
Resources
The Government’s response to consultation
ACAS
Guidance: Working without the default retirement age
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.