Default retirement age proposals: 10 things employers need to know

The abolition of the default retirement age will have a huge impact on how employers operate their businesses. The Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 take effect from 6 April 2011.

1. The default retirement age is going to be abolished.

The Government has committed to removing from 1 October 2011 the default retirement age, which allows employers to require employees to retire at the age of 65 or over provided that the statutory retirement procedure is followed. The draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 (PDF format, 30K) (on the UK legislation website) have now been published.

Important: The information in this article has been updated to reflect the revised draft Regulations that were published on 2 March 2011. There were some changes to what was previously stated in the Acas guidance on the repeal of the default retirement age produced in January 2011 (as a result of the Government having “worked closely with Acas” according to Phasing out the default retirement age: Government response to consultation (PDF format, 111K) (on the BIS website)). The Acas guidance previously stated that "the last day that employees can be compulsorily retired under the default retirement age is 30 September, so the last day to provide six months' notice required by the DRA provisions is 30 March 2011" and "employers can still use the DRA between 30 March 2011 and before 6 April 2011 but if they do they must use the short notice provisions". The Acas guidance Working without the default retirement age (PDF format, 856K) (on the Acas website) has now been changed and reflects the content of the draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011.

2. The statutory retirement procedure is also being scrapped.

The current procedure requires employers to:

  • give employees approaching their retirement age between six and 12 months' notice of their proposed retirement date;
  • notify employees that they have the right to request to continue working beyond their proposed retirement date; and
  • consider such requests.

Under the new rules, an employer that wishes to retire an employee will instead have to be able to justify the retirement age and follow a fair procedure under the ordinary unfair dismissal rules. If the employer can justify the retirement, it will be considered a dismissal for "some other substantial reason" under the unfair dismissal rules.

3. Transitional retirement arrangements are in place from 6 April 2011.

The Regulations contain transitional provisions to allow the default retirement age and the statutory retirement procedure to be phased out. The last date on which an employer can give an employee notice of retirement under the default retirement age is 5 April 2011.

However, the draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 provide that, during the transitional period, retirements that were already in motion can continue through to completion, provided that:

  • the employer issues the notification of retirement prior to 6 April 2011;
  • the employee will reach age 65 (or the employer's normal retirement age if that is higher) before 1 October 2011; and
  • the requirements of the statutory retirement procedure are met.

The employer must give the employee between six and 12 months' notice of retirement. This notice can expire after 30 September 2011, as long as the employee is 65 (or the employer's normal retirement age if that is higher) on or before this date.

4. Employers will have different options for dealing with retirement.

Employers will still be able to operate a compulsory retirement age, provided that they can objectively justify it. The Government's proposals call these "employer-justified retirement ages" (EJRAs). To justify a compulsory retirement age, the employer must be able to show that it is a proportionate means of achieving a legitimate aim.

Employers that do not operate a compulsory retirement age may be able to carry out individual retirements on a case-by-case basis, but it will be difficult to justify such a retirement where the employer does not consistently apply an EJRA to all employees in similar roles.

An employer that wishes to retire an employee will also have to follow a fair procedure under the ordinary unfair dismissal rules. If the retirement is objectively justified, the dismissal will be deemed to be for "some other substantial reason" under s.98 of the Employment Rights Act 1996.

5. Employers will have to think more carefully about the reasons for retiring employees.

Under the statutory retirement procedure, an employer that ends a worker's employment by reason of retirement does not have to provide him or her with reasons. The employer is simply obliged to follow the prescribed "duty to consider" procedure. As long as the procedure is complied with in full, the employer is able to refuse to permit an employee to continue working beyond retirement age and is not under any duty to provide a reason for the refusal.

Once the statutory retirement procedure is scrapped, an employer that wishes to dismiss an employee will have to be able to show that it has one of the potentially fair reasons for dismissal set out in s.98 of the Employment Rights Act 1996 (capability, conduct, redundancy, illegality or some other substantial reason).

Where an employee is being retired at the employer's retirement age, and this can be objectively justified, he or she will be seen as being dismissed for some other substantial reason. An employer that wishes to dismiss an employee due to poor performance will have to do so on the ground of capability. To rely on capability as a ground for dismissal, the employer must have evidence of poor performance and have followed a fair procedure.

6. Employers will have to justify objectively retirement ages.

Employers will still be able to operate a compulsory retirement age, provided that they can objectively justify it. To justify a compulsory retirement age, the employer must be able to show that it is a proportionate means of achieving a legitimate aim.

"Proportionate" means that:

  • what the employer is doing is actually achieving its aim;
  • the discriminatory effect should be significantly outweighed by the importance and benefits of the legitimate aim; and
  • the employer should have no reasonable alternative to the action that it is taking.

An aim could be "legitimate" if it relates, for example, to:

  • economic factors such as the needs of and the efficiency of running a business;
  • the health, welfare and safety of the individual (including protection of young people or older workers); or
  • the particular training requirements of the job.

The aim of saving money by getting rid of older workers (who might, for example, be paid more than a younger worker) is not by itself a legitimate aim.

Employers will also not be able to rely on generalised assumptions that lack any factual foundation as sufficient evidence of justification. They will have to provide valid evidence if their retirement ages are challenged.

7. Case law gives employers clues as to how retirement ages can be objectively justified.

As the default retirement age allows employers to have a compulsory retirement age of 65 that they do not currently have to justify, case law exploring how individual employers can objectively justify retirement has been rare.

However, a Court of Appeal case involving a partner (rather than an employee) in a law firm who was forced to retire, Seldon v Clarkson Wright and Jakes [2010] EWCA Civ 899 CA, gives employers an idea of what might constitute objective justification.

The Court of Appeal said that it could be a legitimate aim to avoid forcing an assessment of a person's falling off in performance, thus maintaining a confrontation-free workplace.

The Employment Appeal Tribunal in the same case had earlier held that ensuring that associates have the opportunity to become a partner after a reasonable period and facilitating the planning of the partnership and workforce across individual departments could also be legitimate aims.

8. Time is running out to retire employees under the statutory retirement procedure.

Employers should note the following key dates in relation to the Government's proposals under the draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011:

  • 5 April 2011: This is the final date on which employers will be able to issue between six and 12 months' notice of retirement under the statutory retirement procedure.
  • 6 April 2011: Employers will have to be able to justify objectively any compulsory retirements notified on or after this date.
  • 30 September 2011: Employees who are to be retired under the statutory retirement procedure must have reached age 65 (or the employer's normal retirement age if that is higher) on or before this date.
  • 4 January 2012: This is the last date on which an employee who has been given the maximum 12 months' notice on 5 April 2011 can make a statutory request to continue working.
  • 5 April 2012: This is the last date on which a retirement can take place under the default retirement age regime, unless the employer agrees to extend the employee's employment (ie this is the date (according to the Department for Business, Innovation and Skills (BIS)) on which 12 months' notice that was given on 5 April 2011 will expire).
  • 5 October 2012: This is the last date on which a retirement can take place under the default retirement age regime where the employer has given the required notice and then agreed to the employee's request to extend his or her employment past the proposed retirement date (ie this is the date (according to BIS) on which the employee would retire if the employer agreed to an extension of six months (the maximum extension allowed without the employer having to repeat the statutory retirement procedure) from a proposed retirement date of 5 April 2012, notified on 5 April 2011).

9. Employers need to think about how the timetable will affect their workforce.

Each employer should work out when its employees are going to retire and how the proposals affect retirements within its organisation. The Acas guidance gives examples to assist employers.

The most common scenario will be that the employer has a compulsory retirement age of 65. Two examples show how this will work in practice:

  • Employers with a retirement age of 65 can still use their compulsory retirement age to retire employees who have their 65th birthday on 30 September 2011 or any earlier date, provided that they give notice of retirement before 6 April 2011, and they follow the statutory retirement procedure. This avoids the problem of having to justify objectively the retirement.
  • For employees who have their 65th birthday from 1 October 2011 onwards, employers will have to justify objectively the retirement. They must follow a fair procedure under the ordinary unfair dismissal rules.

10. Employment tribunal claims in relation to retirement will be common after the changes come into force.

Employers are going to face the double threat of age discrimination and unfair dismissal claims from employees who have been compulsorily retired.

Direct and indirect age discrimination claims are likely to revolve around whether or not the employer was objectively justified in requiring the employee to retire.

With unfair dismissal claims involving retirement, the key issues will be whether or not the employer had a fair reason for dismissal and followed a fair procedure once the decision was made to dismiss the employee. If the dismissal is an objectively justified retirement, it will be deemed to be for "some other substantial reason" under s.98 of the Employment Rights Act 1996.