Cautious welcome for retirement age change

Professionals have cautiously welcomed the news that the Government proposes to scrap the Default Retirement Age of 65 from October 2011. 

Currently, if an employer does not wish to retain an employee beyond the age of 65, they must follow a set retirement procedure.  This includes giving the employee 6 months advance notice of the date that they are due to retire along with the opportunity to request that they continue working.  Whilst employers must consider any such request, there is no obligation to permit the employee to continue working, and their employment then terminates on or after their 65th birthday.

If and when the Default Retirement Age is abolished, this will no longer be possible and employers will have to rely on other reasons to dismiss older staff.

This will align the rights of older employees, many of whom feel that they still have plenty to offer, with those of younger employees and will address the inherent unfairness of dismissing an employee simply because of their age.

This will mean many employers having to change their practices and mindset.  However, these changes are not unheralded.  Last Autumn the then Government commissioned a survey into employers' policies, practices and preferences relating to age.  This led to a consultation on the removal or increase of the Default Retirement Age that closed in February this year.  Many employers have already started to prepare for changes to the retirement age and indeed some already operate with no automatic retirement age.  However, despite the warnings, many businesses have still not begun to consider what this will mean for them. 

In practical terms, if these proposals become law, employers are likely to have to rely increasingly on good performance management.  After all, as long as employees are able to perform their role to the required standard and with the right attitude, then it should not matter what their age is.  However, this will place an increased burden on employers to ensure that line managers are equipped to conduct proper performance management and are prepared to address issues if and when they arise. 

Certain employers may be able to justify a compulsory retirement age in certain occupations (such as for fire fighters).  If employers are seeking to rely on this exception (that is derived from the European legislation) then it is critical that they identify how the imposition of a retirement age fits with the Government's social aims and that they can justify their actions as proportionate and necessary in achieving one or more of those aims.  In practice, this exception is likely to have very limited application.  Therefore, even in physically demanding occupations, performance management and capability are likely to be the key focuses.  This itself may present issues.

Some employers may find that they face the problem of performance-managing long-standing employees who they have permitted to underperform whilst counting down to their imminent retirement.

There are also potential issues in respect of heath and safety (in respect of employees struggling to mask ill-health or decreasing dexterity, mobility or memory, in fear of being performance managed and ultimately dismissed) and a danger that steps taken to address actual or perceived capability issues will give rise to an increase in claims for unfair dismissal as well as age and disability discrimination. 

Good employment practice would have employers implementing performance management and monitoring their employees performance in role, and crucially addressing issues of poor performance when they arise.  The temptation for many employers is to bury their heads in the sand when it comes to tackling performance issues in general.  If the proposals become law, then employers cannot afford to allow employees to get away with under-performing (often for many months) if they will then have to rely on capability as a reason for dismissal.

The loss of experience gained by long-serving older staff is presently an issue for many employers.  The removal of the automatic expectation of retirement at 65 could present further challenges in terms of succession planning.  Employers may find it difficult to make assumptions about when employees will leave, and when there will be a need to bring in a replacement.  The obvious way to overcome this is for employers to ensure that they engage in a dialogue with their employees concerning expectations about their retirement.  However, such conversations should be approached cautiously, and would be most appropriate as part of annual reviews and addressed to all staff, rather than on an age specific basis.

There may also be issues in terms of employee benefits that rely on insurance and employee share plans.

The consultation on the proposals are open until 21 October 2010, and if these plans proceed, then the last retirement notices will be issued on 5 April 2011.

For further information, advice on how you can prepare your business or details of performance management training, please contact on eof our experts.

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