· 3 min read · Features

Employers must think now about the implications of the proposed abolition of the default retirement age

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Most employers will have pricked up their ears when the C Government announced its proposals to abolish the Default Retirement Age (DRA) from 6 April 2011.

The removal of the DRA will also mean the removal of the current statutory retirement procedures.  While some employers may welcome this, the reaction from some other quarters, such as the Institute of Directors, has been pretty negative, on the grounds that the procedure actually gave employers flexibility to manage their workforce, and that flexibility, says the IOD, will be lost. 

So what does this mean, and what do employers need to be thinking about now?

How should employers go about retiring employees once the Government’s proposals come into force? 

The fact is that any retirement dismissal will still be exactly that – a dismissal.  Gone are the days when a retirement was simply the day on which an employee stopped work and had no rights against their employer. Employees will have the right not to be unfairly dismissed, so employers wishing to ‘retire’ an employee will need to rely on one of the usual potentially fair reasons (conduct, capability, redundancy, illegality, or ‘some other substantial reason justifying dismissal’). 

Those employees, like all others, will also be entitled to a fair procedure. The conceptual change, if any, is that employees ought no longer to be regarded as having a shelf life. This means that, in order to ensure that all employees are, and remain, capable of carrying out their duties to the standards required by the business, employers will need to use their appraisal and performance management systems effectively and consistently, and ensure that managers are trained well and repeatedly in this regard.

What about a contractual, as opposed to the default, retirement age? 

The answer is that the removal of the DRA will not preclude employers from keeping a contractual retirement age in their contracts. The catch is that employees will have the right to require their employers to objectively justify that term. The reality is that, if put to the test, a finding of objective justification is going to be difficult to achieve before an employment tribunal unless employers think hard about why they wish to keep a contractual retirement age, and are able to explain to a tribunal (supported by documentary evidence of relevant research, for example) what that aim is, why it is legitimate, and how having a contractual retirement age is a proportionate means of achieving that aim. Businesses that wish to keep contractual retirement ages should start work on this now.  Otherwise, employers may be better off scrapping contractual retirement ages altogether.

If a business does decide to keep a contractual retirement age, can employees still ask to continue working beyond that age? 

The answer is yes. An employer would have to consider such a request seriously and give it due consideration in accordance with a fair procedure, or else risk stubbing its toe on the cornerstone of the employment relationship that is the implied term of mutual trust and confidence between employer and employee.

There are other issues too. Some employers and employees were very positive about the statutory retirement procedure, because it meant that both sides actually thought about retirement and discussed its possible impact on them before it hit them between the eyes. The Government has acknowledged this, and may publish guidance on how this dialogue can be maintained in the future.

Also, what will the removal of the DRA mean for the current and future provision of group insured benefits, such as life assurance, medical cover, income protection schemes and critical illness cover?  The Government may clarify this area and may amend the legislation to provide guidance on when employers may stop cover, require medical underwriting or pass the costs on to their employees. 

Similarly, employers should think about whether or not the ‘good leaver’ provisions in their long-term incentive schemes need to be revisited – ‘retirement’ may now not be distinguishable from a simple resignation, and the consequences could be that employees who genuinely are giving up their careers after a long period of service may no longer be eligible for ‘good leaver’ treatment.

When will all this happen?  The consultation process on the proposals closed on 20 October 2010 and the Government has said that it will publish its response in November this year. However, you employers should start preparing for what is likely to be inevitable.

Jessica Corsi, partner, Doyle Clayton Employment Solicitors