Have your say: consequences for employers of phasing out the default retirement age for employees

Currently, the law allows an employer to force an employee to retire at 65 (or any earlier age it can objectively justify), provided they give the employee appropriate warning within certain time limits before their retirement date, according to a binding legal procedure. Employees can submit requests to postpone their retirement, which the employer must consider but is not obliged to grant, or even to justify.

A new consultation document sets out the government's proposals, which will simply stop employers from dismissing employees because they have reached 65. The consultation closes on 21 October 2010.

Likely consequences include:

• Employers will have to take positive action to terminate the employment of older workers once they can no longer rely on the default retirement age. This could result in some difficult decision-making for employers. Employers may have to make more judgement calls on whether and when to dismiss older employees, and on what grounds - for example, conduct, capability, or disability - and may find they have to deal with more (or different) performance or ill-health issues because their workforce has more older workers in it, or make more 'reasonable adjustments' to working terms or conditions to accommodate them. This will be a particularly thorny issue for employees if, as expected, older employees are likely to challenge such decisions.
• The effect of a larger proportion of older workers on workforce structures and personnel planning and management generally.
• Possible additional costs for employers. For example, insurance and potential redundancy costs may rise, and staff benefits will have to be provided to employees who remain on the books beyond the retirement age - which may lead to reduced benefits for all workers to save costs.
• The need to adjust defined benefit pension schemes, to allow for more flexible retirement (although longer periods during which employees contribute to, and shorter periods during which they draw, pensions may benefit employers).
• The need to review ill-health benefits, in case older workers means more, or different, health issues for staff.
• Additional difficulties for young workers trying to find jobs, or looking for promotion, as older works compete for them or block their progress.

Employers will still be able to set contractual retirement age for their employees - or, more likely, different contractual retirement ages for different types of employee - provided it can be 'objectively justified'. This will be a difficult test, and employers will have to show they have taken into account what the business does, the requirements of each employee's job, and other relevant factors.

EU Directives and recent case law imply that these might include the need to run your business efficiently, the demands of succession planning, the need to integrate workers of a particular age into your workforce, the training requirements of a particular job, the health and safety of all employees, opportunities for career progression in your business, the need to create a supportive and congenial culture in the workplace and the need to protect public health.

Recommendations

• Employers should consider the possible effect of the propsoals on their staff structures, personnel planning and management, and costs.
• Employers who are able to objectively justify setting a retirement age of their own should seriously consider doing so. Take specialist legal advice.