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Abolishing Default Retirement Age

Letter to the Editor - Managing age-diversity in the workplace

October 29 2014 - Today's workplace can encompass four distinctive generations, each raised under drastically different economic and political climates. Individual's attitudes toward their careers, interacting with colleagues and balancing their professional and personal lives typically reflect the unique attributes that their generation brings to the workplace.

Yet, with diversity issues and potential discrimination claims a real concern, how can business owners accommodate age diversity and avoid costly challenges? Furthermore, how can they ensure their workforce is balanced in terms of ambition and experience?

Many organisations removed their contractual retirement policies when the default retirement age was abolished in 2011. However, since then, some may have found younger employees are leaving as their path to promotion is blocked by an older worker, which could leave a skills gap in time to come. Meanwhile, for the older worker, who has been a dedicated and loyal employee for many years, elements of under-performance might start to appear. Whilst the option of performance managing these individuals out of the business is unattractive for everyone, some companies may wish to re-examine whether they should reinstate a compulsory retirement age into their business.

The key is being able to demonstrate that a retirement age is justified in a particular business. Is it needed to allow younger employees to progress or to allow those who are slowing down to leave gracefully, without the ignominy of performance management after a long and dedicated service?

In considering this question, employers must seek some statistical backing for their decision making. They need to examine the particular role an individual is performing; across all different aspects of that role. Does it require the employee to be at peak physical health, for example? Are the number of management roles available within the business limited, and might this justify a retirement age in order to prevent younger employees leaving?

The first step therefore is for employers to decide if they can justify a retirement age for any given role. The next issue is at what level the retirement age should be set. The recommendation is that this should be somewhere between state pension age and 70, but once again, it will be dependent on the organisation's individual circumstances.

Undoubtedly, businesses need to think carefully and thoroughly consider all factors before establishing their retirement policy. However, a committed and considered policy will undoubtedly help them ensure they maintain a balanced and motivated workforce of all ages.

Your sincerely,

Jo Davis, partner and practice group leader, Employment,

B P Collins LLP

employmentlaw@bpcollins.co.uk

.
Background

In 2010 the charity Age UK welcomed the Government's decision to consult on abolishing the default retirement age (DRA) from October 2011, describing it as a 'huge victory' for older workers and a 'landmark' for UK society. The charity argued that the economy, public finances and employers would all benefit from the change. Age UK estimated that in 2009 about 100,000 workers over the age of 65 were forced to retire with employers using this mechanism as a short cut to shedding jobs.

The charity acknowledged that some employers' organisations had cautioned there would be a negative impact on businesses. However, it highlighted the Government's own impact assessment that estimated employers would save £45 million in the first year, rising to £71 million per year after ten years, set against one-off costs of approximately £38 million. The UK economy would also benefit from the retention of skills and knowledge, plus an extra £79 million in tax revenues in the first year and £132 million each year after a decade.

Age UK gave a robust response to other arguments against abolition of compulsory retirement put forward by employers' organisations:

  • "Scrapping the DRA would not 'line lawyers' pockets'."Research suggested there would be a reduction of between 200 and 400 cases a year coming before employment tribunals. Abolition of the DRA would reduce bureaucracy and make employers less liable to compensation claims arising from incorrect application of current complex procedures.
  • "Older workers will not ‘work until they drop'."The average retirement age has increased since 2000, but in 2010 remained below the default age of 65 (64.5 for men; 62.4 for women). Abolishing the DRA would not affect existing procedures for assessing work performance. It will still be possible to dismiss employees on grounds of capability or initiate disciplinary proceedings provided the decision is not based on the person's age. Over 80 per cent of employers operating a mandatory retirement age already had performance management systems in place.
  • "It will not be more difficult for employers to broach the subject of retirement." One of the objectives of the Government consultation was to develop guidance about how best to initiate discussions about retirement and to minimise the risk of disputes. Research indicated that 80 per cent of requests to continue working past retirement age were already accepted.
  • "There will not be fewer jobs for younger workers." Age UK argued that there was no evidence that this change would be to the detriment of younger workers. The concept of a finite job market can be challenged on several grounds: new graduates and experienced older workers are unlikely to be competing for the same jobs; demographic changes over the following decade would result in fewer younger people entering the workforce; many workers reaching their sixties choose to change jobs, downsize or go part time, creating opportunities for younger employees.

 


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