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Business
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5/17/2011
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Working without the default retirement age
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On April 6 2011 new regulations came into force whereby, subject to transitional provisions, the default retirement age of 65 was abolished. Ben Smith, an Associate at Charles Russell LLP, considers the issues...
The basic position now is that no fresh notices of intended retirement can be issued after April 5 2011. Employees can still be lawfully retired after this date but the notice must have been served by 5 April and the employee must be at least 65 by September 30 2011. An employee being retired in this way can give notice (before January 5 2012) to request to work beyond the intended retirement date. The final date for retirement is theoretically October 2012. This would occur where an employee is given 12 months’ notice on April 5 2011 and their request to work beyond April 2012 is accepted, with a fixed period of six months.
Retaining a retirement age
If the employer wishes to retain a retirement age, it will need to be able to objectively justify that age.
Objective justification
In order to objectively justify having a retirement age the employer will need to show that compulsory retirement is a proportionate means of achieving a legitimate aim. The aims an employer is likely to have are fact sensitive, but could include:
- Workforce planning issues i.e. recruitment and promotion opportunities and managing succession;
- The employer’s specific economic or business needs;
- The health and safety of the workforce; and
It is clear from previous cases in this area that employers cannot expect to succeed based on unfounded or incorrect assumptions. Employers should therefore document and retain their analysis of the need for a retirement age and show that they have carefully considered whether it is appropriate at all and if so, what age is appropriate and why. It may also be advisable to consider whether different retirement ages would be appropriate for different sections of the workforce rather than simply enforcing a blanket age.
Retirement dismissal
As “retirement” will no longer be one of the potentially fair reasons for dismissal, where the employer retains a retirement age, the Government anticipates that any subsequent dismissal is likely to be for “some other substantial reason” under the Employment Rights Act 1996 (“ERA”). ACAS guidance states that the “employer should follow a fair procedure in retiring people at the compulsory retirement age” and suggests giving “adequate notice” and, where possible, consideration to any request to stay beyond the fixed retirement age. In the absence of any other formal framework employers should warn and consult with employees before any retirement dismissal and ensure consistency of treatment.
Managing without retirement
If an employer decides not to have a retirement age, employees will either work until they decide to leave, are dismissed in the normal way (e.g. for poor performance or misconduct) or negotiate agreed terms with the employer about leaving. The removal of the duty to consider procedure means that there is no built-in structure concerning discussions with older workers about their future plans. The ACAS guidance suggests that these discussions should be factored into employers’ appraisal systems, avoiding asking questions which could be seen as discriminatory and asking open questions about future plans. If the employer dismisses an employee, the reason for dismissal must fall within the five potentially fair reasons under the ERA. If there are performance or health issues, these should be dealt with in the normal way as for any employee. Where this is the case, as for all employees, the employer should ensure there are no disability or age discrimination issues.
Impact on insured benefits
The cost of providing health insurance and other benefits
There is an exemption in the regulations which enables employers to withdraw insured benefits for employees at or over 65. This age limit will rise in line with the state pension age. Employers should, however, ensure that they do not breach existing contractual obligations through any such withdrawal.
Good leaver provisions and normal retirement age
No legislative change has been made in respect of share schemes and it is for employers to decide whether the rules of the scheme define someone as a “good leaver” or “bad leaver” if they retire. However, this leaves employers with a potential problem where the relevant provision defines retirement in the document itself or by reference to an employment contract or staff handbook. Therefore, share schemes and associated documents will need to be reviewed to consider whether “good leaver” and “bad leaver” provisions need amending, in particular, whether retirement is defined flexibly enough to include retirement in the absence of the DRA and/or retirement through choice.
What should pharmacists who are employers do?
Pharmacists who employ staff and who retain a retirement age beyond April must ensure that they have a suitable and evidenced justification. They should also check contractual documents, share schemes and associated documents and review the recruitment cycle in order to be best prepared for this change. For example, with no retirement age on recruitment, an employer will not be able to factor in an older applicant’s time in employment before retirement as part of the recruitment process.
This information has been prepared by Charles Russell LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information. Charles Russell LLP is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.
Charles Russell LLP is a limited liability partnership registered in England and Wales, registered number OC311850, and is regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office, 5 Fleet Place, London, EC4M 7RD. Any reference to a partner in relation to Charles Russell LLP is to a member of Charles Russell LLP.
Ben Smith is an Associate at Charles Russell LLP and can be contacted at Ben.Smith@charlesrussell.co.uk and on 01483 252566.
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