Insights

Retirement – Are We There Yet?


04/07/2011

Retirement is an emotive subject for many reasons – people are living longer, they generally have less disposable retirement income and their properties are worth less. Many of us, and the writer speaks from experience, having had children a little later in life, now face up to £27,000 in university fees, which may keep us working longer than planned. Improved health and longevity make the whole issue a very big part of 21st century life.

The phasing out of the Default Retirement Age (“DRA”), between April and October this year, would therefore seem a welcome abolition of an otherwise inequitable law. Previously, employers have been able to retire employees who reach the DRA (set at 65) as long as they have followed a strict procedure of notification, considering any request to work beyond the DRA and a right to appeal. This was a somewhat toothless formula, whereby employers did not have to have any justification for refusing to allow a request to work beyond the DRA, resulting in little comeback for the retired employee. Following the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 (“the Regulations”), employers can no longer rely upon the procedure and the dismissal must now be for one of the permitted potentially fair reasons under the Employment Rights Act 1996 (“ERA”), i.e. redundancy, conduct, capability, legality or some other substantial reason.

The Regulations contain transitional provisions, in place for those who reach the DRA on of before 30 September 2011 but these require six months’ notice to have been given on or before 5 April 2011. Accordingly, it is no longer possible to issue a retirement notice under the previous regime regardless of the employee’s age.

For the reasons set out below, the Regulations are not necessarily the “death knell” of retirement ages but what other options will employers have? Capability seems to be the most likely utilised fair reason; as physical and cognitive deterioration impact upon performance. However, particularly in sedentary roles, there is no good reason why employees cannot work on well beyond the age of 65. Unfortunately, as employers will know too well, health related dismissals are expensive, as they often require detailed medical evidence, and time-consuming as they demand high degrees of consultation and monitoring. There is little dignity for older and often extremely loyal employees being put though what can be a humiliating process. However, a well thought-out process handled carefully is likely to be achievable and ACAS suggests that the matter is built into an appraisal system, although our experience of how well managers deal with appraisals is “mixed”, to say the least.

It will not be easy for smaller employers who do not have sophisticated or well staffed HR departments and for larger employers there will be a considerable additional burden. The result is that claims will increase or there will be a log jam of older employees blocking the route to promotion for ambitious younger staff.

Notwithstanding the above, it should still be possible for employers to retain a set retirement age and for this to amount to dismissal for some other substantial reason. Whilst this is likely to represent direct age discrimination under the Equality Act 2010, direct age discrimination (unlike other forms of direct discrimination such as sex and race) is permissible if objectively justified. Furthermore, for the retirement to be fair under ERA, employers must act reasonably in dismissing for that reason.

The result of the above is that to retire fairly an employee at a set age, employers must be able to identify a legitimate business need that justifies a fixed retirement age. This might be easily identifiable for jobs such as fire fighters where the need for extremely fit individuals is clear. For sedentary employees, it seems less clear. The guidance provided by ACAS is unhelpful in this regard and simply states that evidence will need to be produced to justify objectively the decision to retain a retirement age.

Perhaps more helpful have been the cases involving partnerships, where a set retirement age has had to be justified since the 2006 Age Discrimination Regulations. These cases, many involving solicitors, suggest that the following may amount to objective justification:

  • workforce planning and development;
  • the recruitment and retention of younger employees;
  • protecting the dignity of older workers by avoiding performance management;
  • the impact on the costs of pensions and other benefits;
  • maintaining levels of service and standards of work; and
  • achieving an age-balanced workforce with fairness across younger as well as older generations.

It has been suggested that employers have a moral social duty to provide opportunities for younger workers and maintain a through-put of staff.

In addition to justifying the set retirement age, employers will have to establish a fair procedure for implementing this. It has been suggested that a procedure akin to the pre-April process, whereby at least six months’ notice of retirement is given and the employee is given the chance to request to continue to work, will be the minimum. Such procedure will have to be as objective as possible to avoid favouritism or other forms of discrimination creeping in.

Most employers will have a set retirement age in their contracts or policies and few have reviewed them in light of April’s change in the law. What is clear is that employers cannot simply leave things as they stand. They must either remove the retirement age and rely on careful performance management or actually consider justifying why they have a retirement age in the first place. To do the latter, employers must have clear evidence to support the legitimate business aim and research the relevant demographics of their industry and historical trends. Justification of a retirement age below 65 seems unlikely: for our sedentary employee, maybe 68, 69 or 70 would be more appropriate. Many employers are just going to wait and see what happens to others in the courts and tribunals. However, be wary of abolishing a retirement age now in the hope that it can be reintroduced when others have pursued the test cases: once this is done, it may be impossible subsequently to justify a set retirement age.

Gordon Dadds