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Gareth Edwards reports.
Currently, when employees reach 65, employers can compulsorily retire them without making any payment, providing the statutory retirement procedure has been followed. But this is all set to change, as the government has proposed the abolition of the default retirement age from October 2011 (www.bis.gov.uk/retirement-age).
Who will be affected?
All employees, apart from those due to retire at 65 or later before October 2011. In fact, the change in the law will affect some employees before 2011 because the government is also abolishing the statutory retirement procedures. These require the employer to give the retiring employee at least six months notice of retirement, which means notice under the existing regime must be given by April 1, 2011. To accommodate the change the government says it will introduce transitional arrangements by April 2011.
Will my employer be able to force me to retire before I want to?
It depends when you want to retire. Currently if you want to work beyond 65 you only have the right to ask your employer if you can do so. The employer does not have to agree to your request and does not have to give any reason for the decision, either.
Under the proposed legislation, employees who want to work beyond 65 should be able to do so more easily. However, it will depend on the steps the employer takes. Some employers, notably B&Q, Nationwide, BT and M&S already have no compulsory retirement age. Many employers may follow their example.
This probably means that employees will be left to come to their own decisions about when to retire, although it will be necessary for employers to manage employees¹ capabilities and performance. An open retirement age may prompt more dismissals on performance or capability grounds.
Other employers may decide to set their own compulsory retirement age, which the new legislation will allow them to do. Managing retirement will become difficult for employers as they will need to be able to justify objectively the retirement age they set.
As yet there is little in the way of guidelines, but factors employers will need to consider may well include: health and safety considerations; the need to produce a happy workplace; and the need to give younger employees the opportunity for promotion. The onus will be on the employer to justify their decision. A retirement will be a dismissal and the employee can challenge the dismissal at an employment tribunal.
The changes are likely to create uncertainty for employers and employees alike until test cases can clarify the reasons an employer can use to justify the setting of a retirement age.
Will my employer be able to prevent me from retiring when I want to?
No. In order to retire it will still be possible for you to resign, giving notice under the terms of your contract of employment, and it will be extremely rare for an employer to refuse to accept your resignation.
How will the changes affect my pension entitlements?
One advantage of the default retirement age is that the employee qualifies for their state pension on retirement. This will change. Already the government is discussing plans to extend the age at which people can claim their state pension.
Private pension providers may see a change in the legislation as an opportunity to delay the age a pension can be claimed, in order to allow them to build up funds and to take account of the likelihood that people will be living longer.
However, if employers set a compulsory retirement age they ought to ensure that any pension scheme they provide will be flexible enough to permit this Gareth Edwards is a partner in the employment team at Veale Wasbrough Vizards