The UK's coalition Government has confirmed that it will be abolishing the Default Retirement Age of 65 over a transitional period from April 2011 through September 2011.
Background
The current Default Retirement Age (DRA) in the UK is 65 which means that, subject to the prescribed retirement procedures being adhered to, employers are able to dismiss an employee on the grounds of retirement at age 65 or over without fear of claims for unfair dismissal or age discrimination. Employers are required to give employees at least six months' notice of retirement and provide them with the opportunity to request to defer their retirement (although there is no obligation to accept such a request).
The New Arrangements
From 1 October 2011, employers will no longer be able to 'retire' an employee just because they have reached a certain age. Employees will be entitled to carry on working until such time as they choose to retire voluntarily or are dismissed for another reason, regardless of whether they qualify for a state or company pension. Dismissal for retirement would amount to unfair dismissal and age discrimination, the compensation for which would include damages for financial losses incurred and emotional injury suffered by the employee.
Transition Arrangements
Employers will still be allowed to rely on the DRA by giving notice to employees that they are to be retired in six months' time up until 30 March 2011, provided that the retirement occurs before 1 October 2011 and the employee will be aged 65 or over at that time of retirement, or have reached the employer's normal retirement age if this is higher than 65. Until 5 April 2011, employers will also be able to rely on the existing short notice provisions, whereby employees are given only two weeks' notice although this continues to carry a penalty of eight weeks' wages.
Exemptions
Some employers will be entitled to set what will be known as an Employer Justified Retirement Age (EJRA), but the circumstances in which this will be permitted will be very limited. It is anticipated that some employers requiring an exceptional level of physical fitness such as the fire brigade, or mental agility such as air traffic control, may be able to justify setting a retirement age for their employees. Use of an EJRA will be exceptional and employers should take advice before making the decision to apply one to their employees.
Group insured benefits will be exempt from the requirement for equal treatment for the over-65s, in that employers will be entitled to decline to extend health insurance or death in service benefits to those above the age of 65. The age limit for this exemption will increase as the State Pension Age increases.
What Next?
It should be remembered that all employees in the UK can be dismissed fairly if the dismissal is for one of the remaining potentially fair reasons for dismissal and a proper procedure is followed (retirement no longer being a valid reason). The potentially fair reasons are capability (including ill health or performance), conduct, redundancy, illegality or 'some other substantial reason'. This means that if an older employee's performance is slipping or they are no longer in good enough health to perform their role, there are options to ensure a legally compliant exit from the business. As with all dismissal situations under UK employment law, the issue of whether a fair and transparent process is followed is normally the key indicator as to the fairness of the dismissal.
Many employers have traditionally allowed concerns about the performance of those close to retirement to go unchecked on the basis that the employee will be retired in any event. However, it will now be very important for employers to ensure that their performance management systems are properly utilised, including in relation to older employees, in order that action can be taken to rectify performance issues at an early stage. Discussing future plans with employees is also permitted for the purposes of management, provided that older employees are not singled out for questioning on the issue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.