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Abolition of the default retirement age confirmed

01 April 2011

Abolition of the default retirement age confirmed

The Government has confirmed that the default retirement age (‘DRA’) of 65 will be abolished along with the statutory retirement procedure from 6 April 2011.

Transitional provisions will continue to allow a lawful dismissal on the grounds of retirement provided that:

  • a written notification of retirement is issued by the employer to the employee prior  to 6 April 2011 (preferably no later than 30 March 2011); and
  • the employee has attained, or will attain, the age of 65 by 30 September 2011; and
  • all requirements of the current statutory retirement procedure are met.

 
Therefore, any employee with a date of birth after 30 September 1946 cannot be compulsorily retired under the transitional DRA provisions.
 
Clearly, employers that have to date relied on the DRA urgently need to consider whether to maintain fixed retirement ages or remove them and treat employees on a case by case basis.

Maintaining fixed retirement age

Employers that maintain a fixed retirement age will in future be at risk of claims for unfair dismissal and age discrimination. Retirement dismissals will only be legally permissible if the compulsory retirement age can be objectively justified, which will require an employer to show that the retirement age was a ‘proportionate means of achieving a legitimate aim’. This is likely to be a difficult test to satisfy.

Legitimate aims may include:

  1. Health, safety and welfare;
  2. Employment and workforce planning;
  3. Facilitating the recruitment and retention of younger employees;
  4. Contributing to a pleasant workforce and protecting the dignity of older employees by not requiring them to undergo performance management procedures (collegiality);
  5. Training requirements; and
  6. The extra costs of employing older workers.

Having established one or more legitimate aims the employer will then need to show that the retirement age imposed (or cut off point) was proportionate. This will require the employer to show: (1) why they have chosen the retirement age as the appropriate cut off point, for example, can they show evidence of declining performance after a certain age; (2) there is no reasonable alternative, for example, using fitness or competency tests rather than a specified retirement age; and (3) the employer has applied the retirement age consistently.

For unfair dismissal purposes, if objectively justified, the retirement dismissal will be for some other substantial reason.

Removal of fixed retirement age

In the absence of a fixed retirement age, the employer will need to rely upon one of the five remaining reasons under section 98 of the Employment Rights Act 1996 for a potentially fair dismissal: conduct, capability (typically relating to declining health and/or performance), illegality, redundancy or some other substantial reason. It is likely that capability and/or some other substantial reason will be used by the employer.

The employer will also need to show that it acted fairly from a procedural perspective when deciding to dismiss a particular employee and that such dismissals are not tainted with age discrimination. Further guidance for employers is provided by Acas in the document entitled: ‘Working without the default retirement age’.

Insured benefits exception

The Government has confirmed that it is going to provide an exemption that enables employers to withdraw group risk insured benefits (such as PHI, death in service and private healthcare schemes) for employers at or over the age of 65. This will rise in line with the state pension age.

However, the Government has indicated that it does not intend to make any legislative changes in respect of share schemes and considers it is for employers to decide whether the rules of the scheme define someone as a ‘good leaver’ or ‘bad leaver’, if
they retire.

Finally, the Government has indicated the abolition of the DRA does not affect the setting of a ‘normal retirement age’ for the purposes of occupational pension schemes.

For further information contact Andrew Masters on 01227 763939.

Download Employment Law News Spring 2011

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