A study of 330 employers, conducted by international law firm Eversheds, has revealed that whilst over two thirds of employers who currently apply a default retirement age now plan to remove this by October, the pending abolition of their right to retire employees at age 65 is a cause for much uncertainty and concern.
It appears some employers may respond to the removal of the default retirement age by retiring all those over 65 whilst they still can under the current regime. Others are yet to decide, despite clear indications that they hold fears over future capability and performance issues, workforce planning and recruitment.
The research also found that 69% currently have a policy of mandatory retirement for some or all of their workforce (subject to an employee’s right to ask to stay longer).
More than 15% said they felt that raising or abolishing the default retirement age would lead to an increase in costs.
Nearly one in six respondents (15%) anticipate an increase in tribunal claims once the default retirement age is abolished.
Commenting on the findings, Owen Warnock, partner at Eversheds remarked:
“Our study indicated that a significant majority (69%) of respondents currently have a policy of mandatory retirement for some or all of their workforce (subject to an employee’s right to ask to stay longer). When we conducted a similar survey 18 months ago, the number of employers with a fixed age at which they normally require people to retire stood at 84%. This suggests that employers have, unsurprisingly, already started to move away from the idea of forced retirement, a trend that will gather pace over forthcoming months as the number of employers choosing to retain a default retirement age tails off.”
One impact of the removal of default retirement age which the Government foresaw and has sought to avoid is that the cost to employers of providing insured benefits such as private medical insurance and permanent health insurance would inevitably increase, and, if no action were taken, could lead some to withdraw such benefits for all employees. The Government is therefore introducing an exemption from the principle of equal treatment on the grounds of age where group risk insured benefits are provided on behalf of an employer. The exemption will mean that this type of insured benefit can be withdrawn from employees aged 65 and above (though this age will rise in line with the state pension age).
“Nearly a third of those who responded to our study, currently offer insured benefits to those over retirement age. It seems that employers are still considering how to respond to the Government’s recent announcement of this relaxation: 57% of those who currently provide such benefits said they have still to decide whether to take advantage of the freedom not to do so in future for those at 65 or state pension age. 13% have already decided to take up this option and 15% have decided not to do so.”
Worryingly, over 15% of respondents anticipate an increase in tribunal claims once the default retirement age is abolished. The repeal of the default retirement age will result in a change to the UK’s unfair dismissal laws effective from 1st October 2011. In future an employee may chose to retire by resigning their employment or an employer will have to terminate for legitimate reasons.
“The scope for employees to challenge the validity of the reason for dismissal and whether it was a mask for age discrimination will increase and employees may well seek to challenge the process followed in particular cases, contending it was unfair. The likely result is that this will lead to more difficult performance management issues for employers, particularly with employees wishing to work on longer for financial reasons.
“Abandoning compulsory retirement necessitates employers finding out what plans employees have for their retirement so that both parties can prepare for the transition.