Posted on Thursday 23 September 2010 by Ulster Business

The Government has unveiled plans to abolish the default retirement age next year. Lisa Bryson from Carson McDowell looks at what this means for employers

The Employment Equality (Age) Regulations 2006 (“Age Regulations”), introduced in October 2006, when published contained a national default retirement age (“DRA”) of 65. At the time, the introduction of a DRA was perceived to be a response to economic and social realities and capable of objective justification. The factors considered were the employer’s need to undertake workforce planning and to avoid blocking jobs for younger workers; providing a target age against which employees could plan their careers and be encouraged to take their retirement; and avoiding any adverse impact on the provision of occupational pensions and other work related benefits that the absence of a retirement age would cause. The Age Regulations, as originally drafted, meant that employers could dismiss an employee when they reached the age of 65 without the risk of an unfair dismissal and age discrimination claim if the employer complied with the retirement procedure set out in the Age Regulations. In July the government confirmed that it plans to abolish the DRA during 2011 and issued a consultation document on phasing it out. This has created media attention with concerns arising that this would now mean people would have to work or could work until they dropped. Of course, this might suit some - especially with those with inadequate pension provision - but it won’t appeal to everyone, not least employers faced with managing a potentially elderly workforce. What does the Government propose? Retirements under the DRA procedure will cease completely on October 1, 2011 and no notices of intended retirement may be issued after April 6, 2011. Traditional arrangements will apply to the period April 6 – October 1, 2011. Retirements that have been notified before April 6, 2011 to take effect before October 1 will be valid. Retirements notified before April 6 but intended to take effect after October 1, 2011 will not be valid unless they can be objectively justified. What does this really mean? The Age Regulations do currently allow employers to objectively justify a compulsory retirement age. The removal of the DRA will not change this. Employer justified contractual retirement ages are and will continue to be allowed. So, where there is no employer justified retirement age, the position will be that employees will simply carry on working until they decide to leave. If an employer wishes to dismiss an older employee, this would entail following a fair procedure and relying on one of the fair reasons for dismissal set out in the Employment Rights (NI) Order 1996, such as capability or conduct. Employers have expressed alarm in relation to this proposal. They say scrapping the DRA restricts the freedom of employers to manage the natural flow (for example, progression or succession planning) of their workforce and would lead to unpleasant capability dismissals of underperforming (older) employees whose retirement has perhaps arrived at the right time. Dismissing older employees who are no longer “up to the job” is something business groups are keen to avoid, preferring a gentler send off in the form of some kind words, a good send off and perhaps even a present. With the removal of the DRA (they say) putting up with an unsatisfactory employee for a few years until they retire will no longer be an option meaning that there are likely to be more Tribunal claims by employees who believe that they have been unfairly forced out of their job. Justifying retirement As mentioned above, after the proposed changes are implemented it will still be open for employers to have a contractual compulsory retirement age in place but employers must be able to justify that retirement age for themselves under the Age Regulations. An example of such justification would be where a drop off in performance could lead to significant safety risks, evidence shows a link between age deterioration and performance and routine performance testing is not feasible. Workforce planning reasons might also justify retaining a compulsory retirement age for some employers (although not all). The recent Judgment of the Court of Appeal in the case of Seldon –v- Clarkson, Wright and Jakes (2010) seems to suggest employers will have scope to justify forced retirement. In that case, the Court of Appeal upheld a retirement age of 65 for a partner within a law firm, noting that the DRA of 65 for employees supported the choice of 65 as being ‘a fair and proportionate cut off point’. However given the proposal to remove the DRA, employers will now have to provide detailed evidence of why it is necessary to have a particular retirement age and will no longer be able to rely on a natural cut-off or retirement point. Difficulties for employers Another potentially difficult area for employers is how to approach and go about handling the ‘its time for you to go’ discussion gently and in a manner that does not cause offence and ultimately lead to dispute. The Government consultation paper is in fact asking for responses as to how to approach these type of discussions and whether a code of practice would be beneficial for employers. What is clear at this time is that the DRA will be abolished on 1 October 2011. It will therefore be imperative for employers to consider their own contractual retirement age and whether the retirement age set out in standard contracts of employment can be objectively justified. The consultation paper is inviting views (by 21 October 2010) and can be completed online at www.surveymonkey.com/s/2VWVDND.

Scrapping the DRA will boost the economy

By Wilfred Mitchell, FSB Policy Chair

The Federation of Small Businesses believes the government proposal to scrap the default retirement age in the UK is long overdue and, if implemented, could help inject substantial and much needed extra pounds into the economy. Research carried out by the Federation revealed that small business owners had absolutely no intention of putting a blanket policy in place to ensure their employees retire at 65. Indeed, those surveyed said they placed enormous value in older members of staff and greatly appreciated the huge contribution and range of skills, knowledge and wisdom these workers bring to their respective businesses. Nearly 80 per cent of those questioned said they do not enforce the default retirement age for their staff and 76 per cent believe that retirement should be a mutual decision between the employee and employer. Two thirds said they did not think the Government should set a default retirement age and 90 per cent of small businesses would consider an employee going into part time or flexible working, rather than retiring. For many people their work is a vitally important element of their life and enforcing retirement on them is not only unfair on the individual but also deprives the workplace of willing and capable employees. Furthermore, by retaining these valuable members of the workforce it will also help ease strain on already stretched public finances by ensuring more people continue to make vital tax payments. However, it is essential that a provision in the new law is also created to protect employers that need to retire staff because of ill health that threatens or hinders their levels of performance.

Default retirement age gives employers flexibility

By Joanne Stuart, Chairman, Institute of Directors Northern Ireland Division

The Institute of Directors believes the abolition of the Default Retirement Age (DRA) would remove an important mechanism that gives employers flexibility in managing their workforce. We do not see how removing it is compatible with the Government’s stated desire to boost enterprise and de-regulate the employment arena. With more people wanting to work past 65 because they are living longer, healthier lives, we believe there needs to be a fuller examination of the UK’s existing retirement framework. While it is the case that many people will be capable of doing their jobs past 65 and into their 70s, it is important that the Government recognises that this will not be possible for all employees in all job types. In some instances it simply won’t be possible for employers to adapt jobs to suit older workers. And in small firms it may be completely impossible to redeploy older workers to suitable jobs. For these reasons, many employers will continue to need the flexibility provided by the DRA. However, in a highly competitive business environment no sensible employer wants to lose good staff just because they’ve reached a certain age. Equally, it is important that capable employees, who want to work longer, have the opportunity to do so. We think that the current system, where employees can work beyond the DRA with the agreement of their employers, is sound in principle, and supports both parties. But this does not mean that there is no scope for reform. We believe it’s important that the UK’s retirement system evolves in line with modern working practices and we therefore propose that the DRA is raised, initially to 68. Such a step would allow people to work longer, while ensuring that employers have options in dealing with their specific business needs.

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