Abolition of the default retirement age: overview

Elizabeth Stevens of Steeles (Law) LLP begins a series of articles on the abolition of the default retirement age with an overview. The default retirement age allows employers to force employees to retire at the age of 65, provided that they follow a statutory procedure. The Government has confirmed its plans to abolish the default retirement age, from 1 October 2011. 

Retirement notice and existing duty to consider procedure

Under provisions in sch.6 to the Employment Equality (Age) Regulations 2006 (SI 2006/1031), employers can give notice of retirement to employees to take effect on or after the default retirement age of 65, their own higher retirement age or their own lower compulsory retirement age (which must be objectively justified).

The employer must give its notice of retirement to the employee between six and 12 months before the intended retirement date and inform the employee that he or she has the right to make a written request to continue to work beyond the intended retirement date. If the employee does not want to retire, he or she must make a request to remain at work between three and six months before the intended retirement date. The employer must consider the request and hold a meeting with the employee to discuss it (unless the employer agrees to grant the request without a meeting), following which the employer must notify the employee of its decision in writing. The employer is not obliged to justify, or give reasons for, its decision not to allow the employee to continue to work.

Provided that the employer follows the correct procedure and gives the employee the opportunity to request to continue working beyond the age of 65, the employer can terminate the employee's employment on the ground of retirement. Dismissal in these circumstances would be fair and would not amount to age discrimination. See the Retirement section of the XpertHR employment law manual for more details of the procedure.

Government proposals

In July 2010, the coalition Government published a consultation paper on its proposals to phase out the default retirement age of 65, with effect from 1 October 2011 (Phasing out the default retirement age: consultation document (PDF format, 440K) (on the BIS website)). On 13 January 2011, it published its response to the consultation (Phasing out the default retirement age: Government response to consultation (PDF format, 111K) (also on the BIS website)) and confirmed the timetable for the abolition of the default retirement age.

Regulations, which have not yet been published, will take effect on 6 April 2011, bringing about the changes and providing for a transitional period to run from 6 April 2011 to 30 September 2011, after which employers will no longer be able to retire employees compulsorily at age 65 unless they adopt their own objectively justified retirement age, referred to as an "employer justified retirement age" (see below).

Acas has published guidance on the retirement process and the removal of the default retirement age (Working without the default retirement age (PDF format, 343K) (on the Acas website)). The Government has also published updated guidance (Managing without a fixed retirement age (on the Business Link website)).

Following concerns raised during the consultation process, the Government has confirmed that there will be an exception to the principle of equal treatment on the ground of age for group risk insured benefits (for example income protection, life assurance, private medical cover and sickness insurance). Employers will be permitted to exclude employees from access to these benefits once they reach the age of 65. This age will increase in line with the state pension age (see the Pensions section of the XpertHR employment law manual for more details). This exemption has been made on the ground that to provide these benefits to employees over the age of 65 would be prohibitively expensive for employers.

Timetable

Employers should note the following key dates and plan accordingly to ensure that they bring about compulsory retirements under the default retirement age before 1 October 2011:

• From 1 October 2011, the default retirement age will be repealed. From 1 October 2011, employers will have to justify objectively any compulsory retirement age and retirement will no longer be one of the potentially fair reasons for dismissal in s.98 of the Employment Rights Act 1996.
• The last date that an employer can compulsorily retire an employee (at age 65 or above) using the statutory retirement procedure is 30 September 2011.
• To give employees the minimum six months' notice of retirement required under the existing statutory retirement procedure, the last date for employers to issue retirement notices is 30 March 2011 (as set out in the Acas guidance). A notice of retirement must expire by 30 September 2011 and will not be effective after that date.
• Employers can still rely on the default retirement age, and issue retirement notices up to 5 April 2011. However, any notice given between 31 March 2011 and 5 April 2011 will not give the minimum six months' notice required under the procedure, since the notice must expire by 30 September 2011. This means that any such notice will fall within the "short notice" provisions in sch.6 to the Regulations, under which an employee may claim up to eight weeks' pay as compensation.
• The retirement procedure set out in sch.6 will be repealed with effect from 6 April 2011 and no further notices of retirement can be issued from this date.

Any notices of retirement that are issued to employees prior to 30 March 2011 but that are intended to take effect on or after 1 October 2011, will not be effective (unless an employer justified retirement age applies).

Impact for employers

Once the default retirement age has been abolished, employers will not be permitted to retire employees compulsorily unless they choose to adopt an "employer justified retirement age". An employer justified retirement age must meet a legitimate aim, for example workforce planning or health and safety, and the retirement age must be a proportionate means of achieving that aim for it to be objectively justified. This is likely to be difficult for most employers to establish.

Retirement will be removed as one of the potentially fair reasons for dismissal currently set out in s.98 of the Employment Rights Act 1996. As with all employees, for the dismissal of an employee who is 65 or over to be fair it must fall within one of the pre-existing potentially fair reasons (ie conduct, capability, redundancy, statutory ban or some other substantial reason). Employers that are concerned about an older worker's performance will have to follow a performance management procedure before considering dismissal on capability grounds, as they should for employees of any age.

In addition, employers that recruit new staff will no longer be able to rely on the current exemption that permits them to reject an applicant on the ground that he or she has reached, or is within six months of reaching, the retirement age of 65 or older, without being at risk of a successful claim for age discrimination (see The implications of rejecting a candidate on grounds of age in the Selection section of the XpertHR employment law manual for more details). Employers will need to be able to justify objectively any maximum recruitment age, as they do already (other than when the exemption above applies), including where this relates to an objectively justified retirement age.

The Acas guidance includes advice for employers on holding workplace discussions during which employees' future plans, including retirement, can be discussed. The majority of respondents to the government consultation indicated that they favoured a statutory code of practice to assist in holding retirement discussions with employees, but the Government has decided that formal guidance would provide a more flexible approach.

Next week's topic of the week article will look at employers' obligations in relation to the abolition of the default retirement age and will be published on 14 February.

Elizabeth Stevens is a professional support lawyer in the employment team at Steeles (Law) LLP (estevens@steeleslaw.co.uk).

Further information on Steeles (Law) LLP can be accessed at www.steeleslaw.co.uk.