A Simple Guide to the Main Points of the Default Retirement Age Changes

Changes in the default retirement age (DRA)

The default retirement age (DRA) will be abolished 1 October 2011. This means that employers will no longer be able to compulsorily retire employees when they reach 65 years of age. The background to the new legislation and what changes must be made by businesses employing older workers is explained in this article.

For years, employers have been able to dismiss staff when they reached the default retirement age of 65. From 1 October 2011 this will not be possible.

Any DRA retirements already in the pipe line must take place no later than 30 September 2011. Employers should remember that, under the current rules, an employee approaching 65 must be given six months notice of retirement. This means that the last date for serving notice under the existing DRA rules is 30 March 2011. Any employer who misses this date will be able to use a 'short notice' provision until 5 April 2011, but should be aware that they may face a late notice penalty of eight weeks pay for each employee.

The government's reasons for abolishing the DRA is so that retirement is seen as a 'matter of choice rather than compulsion'. It is widely anticipated that working longer will benefit not just the people concerned, but society in general, and the economy in particular.

Although the government has consulted widely, there are still some concerns among employers about how the new procedures will work in practice. It is important to understand that all businesses will have to change their approach towards employee retirement so that they are not served with claims for unfair dismissal or discrimination.
The best way of demonstrating what employers must do is to take a couple of the most frequently asked questions and give some suggestions about how to deal with them under the new system.

Many employers are concerned that they could face an age discrimination claim if they as much as discuss retirement with an older worker. It is perfectly acceptable to find out about the long term aims and aspirations of older workers. It is the way in which this is done which is important. Rather than just asking older employees about their future plans, why not ask this of all members of staff regardless of their age, perhaps as part of the annual appraisal meetings. In this way an employer will be seen to be open handed and treating all age groups fairly and equally.

Another frequently asked question concerns under-performing employees who are close to their 65th birthday. How can such an employee be dismissed under the new rules? It will not be possible to dismiss an employee just because they have reached 65 and the assumption that performance declines with age is no longer acceptable. However, if an older worker is genuinely not capable of fulfilling their role, then this could be a reason for their dismissal. Such matters must be discussed in the appropriate forum and plans made to improve performance, perhaps with extra support. Ignoring poor performance in an older worker is not an option because this could lead to claims of age discrimination from younger workers.

Some employees recognise that they are ready to retire and will talk about their plans in a general discussion or at their annual appraisal. If they say that they would like to retire at 65, then this is acceptable. However, all employers should be aware that an employee may change his/her mind and, at another time, indicate that they intend to retire at a later age than previously stated.

Employers will be able to retain a retirement age for their employees providing they can justify their needs, but a defined retirement age is expected to be the exception rather than the rule. Likely reasons could be because of organising succession planning or because a retirement age is considered to be 'essential' for health and safety reasons. Appropriate evidence would be expected and, to date, there is limited case law guidance for any employer who wants to make a case for retaining a retirement age. The Court of Appeal upheld a justification in the case of a small organisation (Seldon v Clarkson Wright and Jakes) whereas, in the Heyday case, the High Court refused to accept Age Concern's challenge about the legality of the DRA.

Retaining a retirement age which cannot be justified could lead to claims for unfair dismissal and/or age discrimination. Therefore, until there is more case law, not having a retirement age is the better option to take. In addition, employers are recommended to implement methods to assess performance. There are a number of ways of doing this. For example, holding regular discussions about employees' future plans, either at an individual's annual appraisal or with a group of employees in an informal 'workplace' debate. Using the appropriate terminology is important. Words such as 'plans and aims' are preferable although there will be occasions when direct questions about retirement are necessary. Many employers may find this transition in the use of appropriate language difficult and worry in case they are not acting within the law, but there is advice available from a number of organisations.

Matt Crumble has worked in Marketing at PBS UK Ltd. for many years. PBS are a leading Payroll service provider company specializing in Small Business Payroll services and Payroll Outsourcing services.