Government signals end to mandatory retirement

Employees will no longer be forced to retire solely on the grounds of age if proposals put forward by the government are adopted. The Department for Trade and Industry (DTI) has finally published its consultation paper1 on age discrimination covering a number of issues including retirement age, unfair dismissal, recruitment, and pay and non-pay benefits.

Under the terms of EU Directive 200/78/EC, which establishes a general framework for equal treatment in employment and occupation (the Employment Framework Directive), anti-age discrimination legislation has to be brought into force by December 2006. The DTI revealed its initial proposals last year (OP, February 2002), which covered such matters as sexual orientation and religious belief. However, while this first consultation put forward a number of ideas for dealing with age discrimination, it contained no firm proposals.

Main proposals

The legislation will apply not only to employers but to trades unions, professional associations and providers of training. Like existing equality legislation, it will provide that discrimination can be both direct and indirect. Direct discrimination will occur when a decision is made on the grounds of chronological age. Indirect discrimination will be found where an organisation has a policy or practice that applies to everyone, but causes disadvantage to a certain group.

In order to justify treatment of people on the grounds of age, those bodies covered by the legislation must be able to demonstrate that they do so by reference to specific aims and be able to produce supporting evidence. The Employment Framework Directive contained a long list of acceptable justifications for discriminatory behaviour that applied solely to age discrimination. The DTI has included these in the paper as examples of the specific aims that may warrant different treatment. These policies include:

  • health, welfare and safety;

  • facilitation of employment planning;

  • the particular training requirements of the post in question;

  • encouraging and rewarding loyalty; and

  • the need for a reasonable period of employment before retirement.

    Retirement age

    In making its proposals for abolishing mandatory retirement ages, the government is careful to differentiate between the contractual age at which employees must retire from their employment ("retirement age") and the age by reference to which their pension benefits are calculated ("normal pension age"). The changes put forward in the paper only apply to the former. Under the Employment Framework Directive, it is still permissible for occupational pension schemes to set specific ages for the administration and calculation of benefits.

    The government appears to have not quite made up its mind on this issue. Before formulating its final proposals it wishes to analyse the responses to the consultation. At the moment its intended approach is that compulsory retirement ages would be unlawful, but employers should be able to justify mandatory retirement ages by reference to aims set out in the legislation. However, it is seeking views on whether there should be a default age at which employers could retire employees compulsorily without justification. Several respondents to the initial consultation said that having a default age would give them more certainty when it comes to workforce planning. The default age proposed is 70, mainly because, as the government points out, there are so few people working above that age that there is no research on their ability to continue working effectively.

    The main questions relating to retirement age upon which the government is seeking views are reproduced in the accompanying box.

    Other consultation topics

    The government also intends to amend the legislation on unfair dismissal and redundancy payments so that employees can seek redress at any age. At present employees are excluded under the Employment Protection Act 1996 from bringing claims for either remedy once they reach 65, although the legislation is being challenged in the courts (OP, October 2002). While proposing to abolish the specific age limit of 65 for bringing claims, the government still intends to include a provision that retirement at a "justifiable retirement age" will be a fair reason for dismissal.

    At the same time, the government also intends to draft the legislation to allow employers to provide pay and non-pay benefits based on length of service or experience in circumstances that might otherwise amount to discrimination, provided they can justify doing so. This section of the paper is very short and leaves many questions unanswered. One area on which it is completely silent is that of age-related contributions to defined-contribution pension schemes.

    Looking ahead

    The government believes that in the long term, its proposals will significantly benefit the economy, but accepts that in the short term there will be a total cost of around £110 million, much of which will fall on smaller employers.

    The consultation closes on 20 October 2003. The government is planning to lay draft Regulations in the first half of 2004, which would take effect on 1 October 2006. This is slightly earlier than is required under the Directive, but is in line with the government's intention of only introducing employment legislation on 6 April or 1 October each year.

    Some of the findings from a complementary research report published at the same time as the consultation paper are set out in Factfile .


    Questions on retirement age in     consultation on age discrimination paper

  • How powerful a signal do you think abolition of mandatory retirement age would send?

  • If legislation made mandatory retirement ages unlawful, to what extent do you think employers and employees would be unable to agree on when an employee would retire?

  •  
    • Employers would only be able exceptionally to justify retiring employees on age grounds or dismiss them for other fair reasons such as on failing competence grounds or as part of a non-age based redundancy measure. What do you think would be the implications and effect of this?

  • Do you think the aims [which may justify different treatment on account of age] are sufficient for employers to justify their particular retirement age?

  • Do you think there are other reasons that might justify requiring someone to retire at a set age?

  • Should the government specify a default age at which employers would be able to require employees to retire?

  • Should the government specify 70 as the default age?

  • If you are an employer do you think you would (a) rely on the default age of 70; or (b) set a higher retirement age?

    Source: "Equality and diversity: age matters - age consultation 2003".

    • 1"Equality and diversity: age matters; age consultation 2003", published by the DTI and available from its website (at www.dti.gov.uk/er/equality/age_consultation.pdf ).