Default Retirement Age
Changes to the retirement age and how they will affect your business
The government has confirmed that the default retirement age (DRA) will be abolished from October 2011, which means employers will no longer be able to dismiss staff on the grounds that they have reached the age of 65.
At present it is possible for an employer to compulsorily retire an employee at 65, as long as they follow the required procedure. They must give notice to the employee specifying their intended retirement date at least six months prior to this date, but not more than 12 months.
However, as first proposed in July 2010 by the coalition government, from April 6 2011, employers will not be able to issue any further notifications for compulsory retirement following the current procedure. Between April 6 and October 1, only those people who were notified before April 6, and who are due to retire before October 1, can be compulsorily retired.
Once the DRA is phased out, an employer can continue to have a compulsory retirement age, but will only be able to legally retire an employee if it can be ‘objectively justified’ under the discrimination legislation. These changes will place a much greater burden on employers who will risk age discrimination claims if they compulsorily dismiss any of their staff.
What does this mean for your business?
The abolishment of the DRA has raised fears among business groups about the loss of flexibility for employers regarding workplace planning. However, these are countered by concerns about employees being forced to retire by their employer when they may wish to continue working. The changes to the system will make it more difficult for businesses to smooth the way for some older members of staff to be retired and there are concerns that the move will create performance issues because when people turn 65 there will no longer be the opportunity to retire them amicably.
As an employer, if you intend to retire any employees after April 6 2011, you must be able to objectively justify the retirement age as a ‘proportionate means of achieving a legitimate aim’.
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It will be beneficial for your business if you set up a system to enable you to have sensible and open discussions with your employees about their career and work expectations throughout their working lives.
Employers can use this transitional period before April 6 to review their workforce and begin compulsory retirement procedures where appropriate, providing they follow the statutory procedure properly.
Scrapping the DRA is expected to benefit thousands of people who would otherwise be at risk of being forced to retire. As people are living longer and healthier lives, abolishing the DRA will help alleviate the enormous pension deficit that the government faces, because people will be working for longer and so contributing to, rather than drawing a pension.