The Government has confirmed the phasing out the default retirement age of 65 by the end of September. Retirement at age 65 is currently a legitimate reason for the dismissal of an employee providing it forms the genuine reason for dismissal and appropriate notice is given. However, from 1 October, compulsory retirement, regardless of age, will be unlawful age discrimination and potential unfair dismissal unless employers can justify their reasons as a “proportionate means of achieving a legitimate aim”.
Owen Warnock, Partner at international law firm, Eversheds commented: “Today’s announcement was not unexpected, but many employers who apply the default retirement age had voiced strong concern over the short amount of time they have to adapt to the changes since the last date for giving six months’ notice of retirement under the current procedures is 30 March 2011. Retirements which have already been notified under the existing retirement procedures but were not intended to take effect until after 1 October will also fall under the new rules and will need either to be reversed or to be justified.
“If they have not already done so, it is essential that employers review their retirement arrangements as soon as possible. Some may consider retaining a compulsory retirement age for particular occupational groups, for example to aid workforce planning or for health and safety reasons, but they will need to be able to show that the retirement age can be justified if they are to defend Employment Tribunal claims alleging this to be discriminatory. This will be no easy task and Tribunals will scrutinize whether there would be other less discriminatory ways of, for example, ensuring effective workforce planning or protection health and safety. Case law around this will obviously begin to develop in due course but the hurdle of justification is not insignificant.
“Many employers will abandon the concept of compulsory retirement; and the Government hopes that this will challenge “myths about older people’s capabilities”. Business groups had lobbied for the removal of a default retirement age to be accompanied by a simplification of the law about age-related capability dismissals, but the Government has rejected the need for such a change. Instead, it asked ACAS to provide employer guidance on managing without the default retirement age, and, in particular, managing poor performance. Two key messages emerge from the guidance on poor performance: not to stereotype older workers as poorer performers and to address poor performance in all workers consistently and fairly. Consequently, employers should consider refreshing and improving performance management processes, and the willingness of managers to operate them, so that concerns about under-performance with any age can be fairly addressed.
“Abandoning compulsory retirement will necessitate employers finding out what plans employees have for their retirement so that both parties can prepare for the transition. The ACAS guidance recommends discussing future plans with all employees (not just older employees) as part of a regular personal development or appraisal system, on an annual basis as a minimum. While many employers already conduct such performance reviews, existing discussions may not currently involve medium and longer term plans and this will need to change .
“There is some good news in relation to insured benefits such as private medical insurance and permanent health insurance. The cost of these increases in line with the age of employees. The government has acknowledged that, when the default retirement age is abolished, the cost to employers of providing such benefits will increase, and, if no action were taken, could lead some to withdraw such benefits for all employees. Similarly where employers operate a flexible benefit scheme, it is not always possible for older workers to obtain the same insurance benefits or they have to pay a greater element of the flexible benefit package, due to the terms applied by insurance companies. To avoid these issues, the Government will introduce 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). “