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Default retirement age has one foot in the grave

25/08/10

The department for Business Innovation and Skills (BIS) has announced this month that it is consulting on putting the default retirement age, and associated procedures, out to pasture – it proposes to abolish both by October 2011.  Given that the headline proposals are unlikely to change as a result of the consultation, and the short timescales involved, employers need to start planning for these changes now. Anne Palmer summarises the proposals and sets out the strategic and practical steps that employers should be taking.

The background

The Employment Equality (Age) Regulations 2006 implemented the age discrimination strand of the Equal Treatment Framework Directive and put in place the ‘default retirement age’ (DRA) of 65: the age at which an employee may be retired from work, provided the employee is notified and a retirement procedure is followed.  The Regulations also set out that employees have the right to request to work beyond their proposed retirement date, and this request must be considered by their employer.

The lawfulness of the DRA was subject to an unsuccessful challenge by Age Concern (under the name ‘Heyday’), but the previous government said that it would review the impact and operation of the DRA in 2010.  The coalition government has gone further and announced that it proposes to abolish the DRA, and all associated retirement procedures, in their entirety.

The proposals

The proposals are set out in the consultation document published by BIS.  In outline, they are that:

  • the default retirement age will be phased out completely by October 2011;
  • there will be no new notices of retirement after April 2011; and
  • the statutory retirement procedure and the ‘right to request’ to work beyond 65 will be removed.

Transitional provisions will be put in place, so that retirements already in train can continue, but only on the basis that:

  • the notification of retirement is issued prior to 6 April 2011; and
  • the date of retirement falls before 1 October 2011; and
  • the statutory retirement procedures are followed.

Compulsory and discretionary retirement ages will still be lawful, if objectively justified, i.e. if they are a proportionate means of achieving a legitimate aim.  These will be known as Employer Justified Retirement Ages (EJRAs).

Any retirement that takes place after 1 October 2011 (even if notified before 6 April 2011) will not be covered by the DRA and will need to be justified under Regulation 3 of the Age Discrimination Regulations.

Furthermore, after October 2011, a ‘retirement’ dismissal will fall under the ordinary rules relating to fair dismissal.  In other words, the dismissal will have to be for a potentially fair reason (redundancy, conduct, capability, illegality, or some other substantial reason) and employers will need to follow a fair procedure.

Practical planning

What decisions and practical steps should be undertaken now, in order to prepare for the forthcoming changes?

  • Review your current plans for staff retirement and consider whether you need to initiate retirement procedures, so that notification takes place before April 2011, and the retirement takes effect before October 2011. 
  • Consider whether your organisation needs a set retirement age (EJRA) after October 2011 (and whether this should apply across the board or vary according to different roles), or whether employees may be retired on a case-by-case basis.  If you decide against having an EJRA, then you should still set out the objective justification of a decision to dismiss, in order to avoid age discrimination claims. 
  • Prepare evidence to objectively justify any retirement age / potentially age-related dismissal.  This should clearly support the reasons for your decision, taking into account the factors in the EHRC guidance on justifying age discrimination.  However, bear in mind that there are no hard and fast rules on when retirement ages / age discrimination may be justified and costs savings alone will not be sufficient.  However, the recent case of Seldon v Clarkson Wright and Jakes provides some help: the Court of Appeal confirmed that employers do have some discretion in relation to setting retirement ages, and ‘maintaining a congenial working atmosphere’ and allowing succession planning may be relevant factors (albeit that Seldon concerned a partnership, rather than employees).  The Court also confirmed that simply because a later retirement age could have been put in place, the chosen retirement age would not necessarily be inappropriate.
  • Remember that, whether or not an EJRA is used, any dismissal must comply with the ordinary rules on unfair dismissal (see above).  The most likely route to dismissal of older employees will be for reasons of capability, and employers should, therefore, be aware of the potential for claims of disability discrimination, as well as age discrimination.
  • Finally, policies and procedures will need to be reviewed, to reflect the removal of the DRA and associated retirement procedures.  This is most likely to affect equal opportunities, age discrimination and retirement policies and procedures, but there could also be a knock on effect on any procedure that relies on ‘retirement’ provisions (for example, share schemes and PHI policies).  

Next steps

  • Consultation on the proposed changes closes on 21 October 2010.
  • The government’s response to consultation is due in November 2010
  • Transitional arrangements (set out above) will be in place from April 2011.
  • There will be no new notices of retirement after April 2011, and the default retirement age will be abolished completely by October 2011
  • It is expected that guidance will be published on handling retirement discussions, but no date for this has been provided as yet.

 

 

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Disclaimer

This update is intended to give general information about legal topics and is not intended to apply to specific circumstances. Its contents should not, therefore, be regarded as constituting legal advice and should not be relied on as such. In relation to any particular problem that you may have you are advised to seek specific legal advice.

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