From 1 October 2011 the default retirement age will be ablished. Phasing out will begin from April.
The default retirement age (DRA) of 65 was introduced by the Employment Equality (Age) Regulations in 2006. It allowed employers to force employees to retire at the age of 65 or above without legal liability, provided that they follow the statutory retirement procedure.
Regulations implementing the change are expected to take effect from 6 April 2011. From this date, employers will no longer be able to issue notifications of retirement using the retirement procedure.
Where notifications have been made prior to 6 April, employers will be able to continue with the process provided the retirement is due to take place before 1 October 2011. No new retirements relying on the DRA will be possible after that date.
What does the change mean?
From 1 October employers will have a choice:
- abolish retirement ages in their organisation altogether; or
- maintain a retirement age for some or all roles which they can objectively justify.
Where employers decide to abolish retirement ages altogether employees will effectively be able to decide for how long they wish to carry on working.
If an employer wishes to retain a retirement age objective justification will have to be demonstrated using solid evidence. Ultimately only an employment tribunal will be able to decide if a retirement age is objectively justified so employers who go down this route will inevitably be in an uncertain position.
The statutory retirement procedure (which currently gives employees the right to request to carry on working) will be abolished at the same time as the DRA.
Retirement will no longer be included in the statutory list of potentially fair reasons for dismissal. However, if an employer can objectively justify retiring an employee at a certain age the dismissal will be for ‘some other substantial reason’ and therefore potentially fair.
An employer will still be able to dismiss an older worker for reasons such as redundancy, misconduct and capability but will of course have to follow a fair procedure in doing so.
The removal of the DRA will also involve the removal of the current rule which allows employers to refuse to employ an applicant for a job vacancy who is aged 64 years and six months or more.
There had been concern that removal of the DRA could lead to increased costs and uncertainty for businesses in respect of benefits provided to older workers. In order to avoid the risk that employers may stop offering insured benefits (such as life insurance and private medical cover) as a result, an exception for group insured benefits provided by employers will be introduced. This will permit such benefits to be withdrawn. It will apply initially to employees aged 65 and above and will rise in line with the State Pension Age.
There are no plans for amendments to legislation affecting share options however. The Government has said that it will be for employers to decide whether the circumstances in which a particular individual leaves make them a ‘good’ or ‘bad’ leaver, and to satisfy themselves that the rules of individual share option schemes are compatible with the law.
There will be no new statutory code for retirement discussions between employers and employees as was previously proposed by the Government, but ACAS has published comprehensive guidance for employers Working without the Default Retirement Age to assist with the change to the law.
Comprehensive guidance is also available from Age Positive