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will we ever be able to retire?

April 27, 2011

Why has the default retirement age (DRA) been removed, and what does it mean for the future?

There used to be a time when people had a career for life, worked until they were 60 or 65 years old, and then retired with the fanfare of a gold watch, or a carriage clock, and a healthy pension to boot. But times have changed.

These days there is very little loyalty left in the labour market. Things are much more fluid and people are much less likely to stay with their employer for 25, 30 or more years. Even if they had wanted to stay with the same employer, the latest technology, or some irritating recession comes along to scupper their plans, culminating in what is generally a pretty meagre redundancy payment and notice of termination of employment. If they are lucky they will find another similar job, but for many people a complete rethink is required.

Age discrimination has without doubt had its part to play in this change, with employers either consciously or subconsciously looking to trade in their aging workers, for newer younger workers. But it would be wrong to suggest that this is all (or even mainly) about age discrimination.

The truth is that workers have become more transient and mercenary in response to business becoming more “commercial” over the years. Outside of the professions employees hop from one career to the next, looking to find that “happy place” which will help them achieve their inflated aspirations: to own that house; and that car; and pay for that £35 per month iphone contract. Likewise, within the professions those employees who stick with their chosen career often hop from one employer to the next trying to climb up the career ladder.

There is nothing necessarily wrong with any of this, except that it means that the majority of workers now think about the here and now. Planning out a job for life has become a very rare occurrence, and at the same time people have stopped planning for their retirements. In moving from employer to employer every few years, employees neglect the matter of pension savings; the State pension is probably on its last legs; and the age profile of the population is increasing.

Now, the European Court of Justice has ruled that it is possible (in the right circumstances) to justify a default retirement age. So whilst theUK’s legal concept of unlawful age discrimination came from Europe, we cannot blame Europe for theUK’s removal of its own DRA. What is clear, however, is that our population needs to work longer in order to pay for its own retirement.

Another thing that the Government is doing to tackle this issue is the introduction of NEST as a semi-compulsory scheme (unless you have something just as good in place) in order to fill the pensions hole. But it will take a long time to feel the benefits of that, if indeed it works as planned. (More on NEST in a future blog)

In the long term the removal of the DRA may mean that older workers are less likely to be dismissed, but in the short term it has led to an acute increase in the number of employees aged 65 or above who were “retired” in advance of the change in the law. Things should settle down now and slowly older workers should start to see some benefit from this.

But what about the employees who want to retire? Are they allowed to? Yes, of course they are, but the problem is that employers may find it very hard to raise the subject without crossing over the line into unlawful age discrimination.

What should employers do now?

One of the biggest issues facing employers is how to allow their employees to retire with dignity. This is a difficult and delicate issue, and it is worth pointing out that every single employer is in a different situation here. One size certainly does not fit all. Things that you should consider are:

  • Can your business justify its own normal retirement age? Remember that the ECJ has said that it is possible to do this. Also remember however that justification is quite a high hurdle to overcome, and this stage requires appropriate investment of time and resources, together with specialist legal assistance, to put you in the best position to justify your own normal retirement age;
  • If you have historically employed people beyond the DRA or any normal retirement age, you will almost certainly be unable to justify a normal retirement age now.
  • Putting in place a decent pension provision (rather than just the bare minimum) will also help employees make the transition into retirement.
  • Easier said than done, but explore the way in which retirement discussions can form part of the appraisal/career development process for all employees (yes, even the 19 year old office junior). This will help with your workforce planning for the future; it should improve employee engagement; it enables you to identify when employees want to retire; and because it applies to all staff (regardless of age) it should not constitute age discrimination.
  • Put in place a mechanism, or procedure that allows employees to ask to retire and publish it (for example in the employee handbook) to all staff. Perhaps some kind of “phasing out” (semi-retirement) policy could also be useful for your business.
  • Ultimately, you may be forced to use capability procedures to terminate the employment of older workers who are no longer fit to perform their duties. No one wants to be in this situation, as it does not feel right to terminate the employment of someone who has been a good employee for the past 45 years on capability grounds… but that is what the current legislative landscape leaves us with.

Finally, if you have started a capability procedure against an older worker, who then says they want to retire, bite their hand off (metaphorically of course). Stop the capability procedure and finalise the end of their employment through an agreed retirement, which is far safer than a capability dismissal.

What steps have you taken to address the issue of retirement in the post DRA era? Please share your experiences and opinions by leaving a comment.

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