Implications for employers of the abolition of the default retirement age

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david-regan-mundays-solicitors-high-resDifficulties

Succession planning

The most obvious difficulty for employers will be that there is no longer a ready-made timetable for retirement, meaning the path to senior positions could be blocked. Employers may also feel unable to ask when an employee is intending to retire, leading to ‘shock’ retirements that leave the employer without a proven successor.

Employee Relations

Employers may also find it difficult to start discussions about retirement with employees as detailed above. Moving forward, employers will be faced with the unpleasant task of performance managing longstanding, cherished employees if they are not up to task rather than allowing them to continue with the knowledge that retirement is just around the corner.

Flexible Working

In practice some employers may be happy to allow an employee to continue working as long as they choose, and many employees will most likely want to at least reduce their hours, if not finish working completely, as they age. It is important to note that the abolition of the default retirement age has no effect upon the flexible working law which is currently in place, and employers will not be under a duty to allow older employees to work reduced hours unless they are eligible for flexible working in the usual way.

Performance Management

Managers must ensure that performance management processes are implemented fairly across the entire range of employees in order to avoid any accusations of age bias, or trying to force out the older members of staff. In addition, managers will need to watch for age related disabilities and, if any disability is found, will need to consider whether or not any reasonable adjustments may need to be made in relation to the employee and their employment.

Exceptions

There are two exceptions to the abolition of the default retirement age:

1. It does not affect occupational pension schemes and the setting of a “normal retirement age” for the purposes of occupational pension schemes.

2. Employers may withdraw benefits for employees at or over the age of 65 (with the age at which withdrawal will be legal rising in accordance with the state pension age). This exemption deals with a key concern of employers, namely that the rising costs of benefits and insurance for employees over the state pension age could make the provision of these benefits prohibitively expensive.

Controversy with the draft Regulations

ryan-giggsThe draft Regulations abolishing the default retirement age have now been published. They appear to make it unlawful to issue a notice of intended retirement date to someone who reaches 65 prior to 6th April 2011 where that notice expires after 6th April 2011. There has been a lot of discussion on this point by lawyers, however we take the view that this is likely an unintended consequence of poor drafting, and that the Regulations will be amended to fix this flaw prior to 6th April 2011.

Conclusion

The abolition of the default retirement age has the potential to have a large impact on businesses, as staff may choose to remain in their position longer, hindering succession planning, and employers and managers will be forced in many cases to invoke disciplinary procedures to manage the performance of longstanding employees, with a subsequent negative effect on morale. However, where there is clear ongoing dialogue between managers and staff, and all parties are open to sensible communication, there is no reason why employees continuing to work past the current default retirement age should prove to be a problem. Employers are still free to choose to set a retiring age for their business, provided that they are able to justify this.

David Regan is a solicitor in the Employment Team at Mundays Solicitors, a leading regional practice which provides quality advice to corporate and private clients.

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