HOW WILL CHANGES TO THE RETIREMENT RULES AFFECT YOU?

Since 1st October 2006 employers have not been able to discriminate on the grounds of an employee’s age unless “objective justification” could be proved.  However, a significant exception has existed for retirement.   Employers could dismiss an employee on or after their 65 birthday providing they followed certain procedures which included giving 6 months notice of an intention to retire and considered any requests to work beyond retirement age.  Retirement was a fair reason for dismissal providing the correct procedure was followed by both parties.

This is all about to change. 

Employees will no longer have to retire at 65.

From October this year employers will no longer be able to follow the default retirement procedure.   An employee can still choose to retire at 65 and take a state pension or retire earlier if they choose to do so.

If an employee does not choose either of these routes they can continue to work after the age of 65.  Employees over 65 will have the same rights to be protected against unfair dismissal as younger workers.  They can be  dismissed  fairly in the same way  and for the same reasons i.e. for poor  performance or for being unable to do the job they are contracted to do providing a  fair procedure has been followed. 

The Employer Justified Retirement Age

Some employers will be able to justify a companywide retirement age if they can show that such a retirement age is a “proportionate means of achieving a legitimate aim”. This will not be an easy test to pass.  Examples of possible legitimate aims may include the extra cost of employing older workers and allowing people to retire with dignity.  In some jobs it will be very difficult to keep working beyond 65 and the Government uses the examples of police and air traffic controllers.  Many manual jobs might also fall within this group. 

If an employer cannot establish an Employer Justified Retirement Age, an employee who is compulsorily retired will have the right to bring a claim at Employment Tribunal for loss they suffer.  Potentially this could be a claim for compensation for losing a job for the rest of their lives as the likelihood of them finding another job at 65 will be low.  As the compulsory retirement age is no longer going to be an option to follow, employers may look at agreeing alternative strategies to alter working patterns.  Alternatives might include changes to hours or to start/end times and job sharing, all by agreement.

Employee Benefits

The new law will clarify the situation on providing insurance benefits. It will not be discriminatory practice to provide them for under 65s and not for over 65s.

Many employee share schemes will need to be redrafted.  Employees who retire are typically treated as “good leavers” whereas those who resign are treated as “bad leavers”.  With the removal of the default retirement age, those who wish to retire at 65 may find themselves treated as bad leavers. The schemes will require redrafting to take account of retirement.

Transitional Arrangements

There are transitional provisions for the default retirement age to be phased out.  The last possible date on which an employee can be retired under the default scheme is 5th October 2012. This is on the basis that an employee is given twelve months' notice of intention to be retired on 5th April 2011 (the last day), and is granted a six month extension. The rules on employees whose planned retirement is caught by the transitional provisions are complicated and we recommend that you take advice.

If you want to discuss the changes further please contact Fiona Hume on 01283 531366.