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the bell tolls for the default retirement age

28 January 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protection and medical insurance) will be exempt from the principle of equal treatment on the grounds of age and can be withdrawn after employees reach the age of 65 (this will rise in line with the state pension age)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 employees 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.

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The content on this page 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.

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