Abolition of the default retirement age

25 March 2011

Further to our earlier e-shot on this matter revised draft regulations for the abolition of the default retirement age (DRA) have been laid before Parliament for its approval.

The DRA is to be abolished on 6 April 2011. This will bring about a cultural shift in the attitude to older employees in the workplace; employees will be able to work beyond current retirement ages. Subject to some exceptions, retirement will no longer be an automatically permitted reason for dismissing an employee if it is carried out after 5 April 2011. To do so will expose the employer to claims for unfair dismissal and age discrimination.

There are transitional provisions, and employers who have notified employees of their retirement under the DRA procedures on or before 5 April 2011 will be able to complete the retirement process, provided that the employee reaches 65 (or their normal retirement age, if this is greater), before 1 October 2011.

Employers will be permitted to have an "employer justified retirement age" (EJRA) if they can establish an objectively justified reason for one. It is anticipated that it will be difficult to establish such grounds save in relation to very particular types of employment. Employers who wish to retain a retirement age will have to take action now to determine whether it is appropriate, who the retirement age should apply to, and the risks of continuing with a retirement age.

Due to the difficulties in establishing an EJRA, most employers will have to cease to apply a retirement age and address the performance of its older employees in the same way as for all others. Employers will need to deal with this under normal performance management procedures and ensure these processes are carried out so as to avoid age discrimination. Most employers recognise the need to strengthen their performance review processes in order to ensure they are suitable for the new circumstances. Employers will need to plan for staff working well beyond traditional retirement ages.

What you need to do:

• Check current retirement procedures are in line with the phasing out of the DRA.
• Review whether you want an EJRA in your organisation, and if so who for. If you take this option you will need to conduct a detailed review of the justification for having an EJRA, support this with evidence (expert in some cases), consider if consultation with the workforce is appropriate and assess your risks.
• Review your retirement policies, staff handbook and contracts of employment as they relate to retirement and amend as necessary (legal advice may be needed before varying terms).
• Ensure your performance review processes and appraisal systems are up to the task post the abolition of the DRA. Also check that you have sufficient safeguards to protect against discriminatory treatment.
• Consider how the removal of the DRA will affect work force planning, i.e. promotion.
• Train managers and staff on the issues and their responsibilities.
• Do pension provisions refer to the DRA? If so, they will need to be reviewed.
• Do share options/share schemes refer to retirement? This is often the case in relation to good leaver/bad leaver clauses. If so these will need to be reviewed.
• Do benefits such as life insurance and health insurance refer to retirement? There are particular exceptions permitted here, but they should be reviewed for compliance.