More than two thirds of the UK’s largest companies surveyed by international law firm Freshfields Bruckhaus Deringer fear employment legislation changes will hamper economic recovery and job creation in the next 12 months. Just under three quarters (68%) believe phasing out the default retirement age (DRA) from 6 April 2011 has more potential to damage economic recovery and job creation in the short term compared to other legislative changes. A similar proportion (63%) argue that the DRA changes will have a bigger impact on their organisations compared to other changes such as the extension of maternity and paternity leave provisions (61%) and equal treatment for agency workers (59%).
In contrast, half (54%) of the UK’s largest companies support the Government’s decision to phase out the DRA from 6 April 2011. A large proportion (45%) of those questioned agree that the Government was right to enact the new legislation now rather than wait until the economy is more stable.
Caroline Stroud, co-head of Freshfields’ London employment practice, says, ‘There’s no doubt that removing the default retirement age has led to widespread concern about the effects on the workforce and the implications for businesses and the economy as a whole. Despite these apprehensions, it’s clear that a majority of employers accept that it’s a necessary step to take as more people want to work beyond 65 or simply cannot afford to retire.’
Maintaining expertise and skills
More than two thirds (61%) cite maintaining expertise and skills in the workforce as the single most attractive opportunity arising from the removal of the DRA. A large proportion of those questioned (45%) also believe that there is an equal balance of cost and benefit to organisations.
Caroline says, ‘It is clear that removing the DRA represents a good opportunity for businesses to retain skills, expertise and talent, as well as promoting the benefits of a diverse workforce. While UK companies acknowledge the advantages, there needs to be a cultural shift in perceptions about the capabilities of older workers and the costs associated with them. HR will have to invest time and money in change programmes in their organisations to ensure a smooth transition.’
Embedding cultural change
More than three quarters of those questioned (78%) identified embedding cultural change in relation to effective performance management as the most critical challenge facing their organisations as a consequence of phasing out the DRA. The majority of those surveyed also agree that removing the DRA will certainly lead to more unpleasant and costly legal action, with 55% believing age discrimination claims will increase and 53% predicting a similar trend for unfair dismissal claims.
Caroline says, ‘The abolition of the DRA will almost certainly expose employers to a greater number of tribunal claims for age and disability discrimination and unfair dismissal. Compensation for age and discrimination claims is uncapped, so employees may feel they have a lot to gain by bringing an age discrimination or unfair dismissal claim. Employers should consider implementing company-wide training to change cultural attitudes to older workers and to avoid harassment and discrimination on the grounds of age.’
Despite some concerns about the potential challenges, a large proportion of those surveyed (49%) believe the change will have little influence on their workforces’ composition. Only 12% predict that more than half of their current workforce eligible for retirement from 30 September 2011 will continue to work.
Just under three quarters (70%) of respondents are not proposing to retain a compulsory contractual retirement age. More than two thirds (64%) also agree that removing the DRA will have a more negative impact on employers with less than 250 staff than larger employers.
Caroline concludes, ‘It remains to be seen whether the abolition will affect workforce composition in the long run. Many individuals have a retirement age of 65 firmly etched in their minds, meaning a significant proportion of the population will choose to retire at 65, even though they are no longer compelled to do so.’