News

September 07, 2010

Have your say: consequences for employers of ending the default retirement age

Employers will welcome the opportunity to comment on government proposals to phase out the current default retirement age of 65 from 6 April 2011.

Employers will welcome the opportunity to comment on government proposals to phase out the current default retirement age of 65 from 6 April 2011. The new consultation, open until 21 October, sets out the key proposals, which will simply stop employers from retiring staff because they have reached 65.

Currently, the law allows an employer to force an employee to retire at 65 (or any earlier age it can objectively justify), provided they give the employee appropriate warning within set time limits before their retirement date. Employees can submit requests to postpone their retirement, which the employer must consider but is not obliged to grant or justify.

If the law changes in April 2011, employers should consider the possible effect of the proposals on their staff structures, personnel planning and costs. They will probably have to take positive action to terminate the employment of older workers once they can no longer rely on the default retirement age.

Businesses could face some difficult decision-making. Firms may have to make more judgement calls on whether and when to dismiss older employees, and on what grounds - for example, conduct, capability, or disability. Managers may find they have to deal with more (or different) performance or ill-health issues because their workforce is older, or make more ‘reasonable adjustments’ to working terms or conditions to accommodate them.

A larger proportion of older workers may affect workforce structures and HR management in other ways, including possible additional costs. Employers' insurance and potential redundancy costs may rise, and staff benefits will have to be provided to employees who stay on the books past 65, which may mean reducing benefits all round to manage costs. Firms will probably need to adjust defined benefit pension schemes, to allow for more flexible retirement (although longer periods during which employees contribute to, and shorter periods during which they draw, pensions may benefit employers). Sickness benefits should also be reviewed, in case older workers mean more, or different, health issues for staff. Other issues include the training requirements of a particular job, health and safety and career progression.

If the law does change, employers will still be able to set contractual retirement age for their employees – or, more likely, different contractual retirement ages for different types of employee - provided it can be ‘objectively justified’. This will be a difficult test, and employers will have to show they have taken into account what the business does, the requirements of each employee’s job, and other relevant factors. Employers who are able to objectively justify setting a retirement age of their own will be advised to consider doing so using legal advice.

• Download the consultation on the Department for Business, Innovation and Skills website.

Operative date

21 October 2010