The government has confirmed the default retirement age (DRA) will be phased out between 6 April and 1 October 2011.
The government has today published its written response to its recent consultation on the removal of the DRA and new guidance to help employers adapt.
The removal of the regulation means from 6 April 2011 employers will not be able to issue notifications for compulsory retirement using the DRA procedure.
Between 6 April and 1 October, only people who were notified before 6 April and whose retirement date is before 1 October can be compulsorily retired using the DRA.
After 1 October employers will not be able to use the DRA to compulsorily retire employees.
Although the government is removing the DRA, individual employers will still be able to operate a compulsory retirement age provided they can objectively justify it.
The government will also introduce an exception so that there are not unintended consequences for employers that currently voluntarily offer group risk insured benefits (income protection, life assurance, sickness and accident insurance, including private medical cover), due to concerns that removal of the DRA could lead to increased costs and uncertainty for businesses by in effect removing the cut-off point beyond which benefits are no longer offered.
Edward Davey, employment relations minister, said: “Retirement should be a matter of choice rather than compulsion – people deserve the freedom to work for as long as they want and are able to do so.
“Older workers can play an incredibly important role in the workplace and it is high time we ended this outdated form of age discrimination.
“We are putting in place support to help business adapt to the change, but it is important to remember that about two-thirds of employers already operate without fixed retirement ages – and many of those with retirement ages already offer flexibility for workers to work longer.
Minister of state for pensions, Steve Webb, added: “It is right we put an end to this outdated form of discrimination where employers can force people out of a job simply because of their age. We will work with employers to ensure the transition is fair and well understood.”
The Employers Forum on Age said that employers have nothing to fear from the removal of the DRA. Rachel Krys, campaign director of leading age campaigners, said: “Employers have been preparing for this change and many are realising the benefits it will have for both them and employees.
“A new approach to retirement which enables individuals to work as long as they are making a valuable contribution, and protects employers’ ability to provide insurance and benefits, is a pragmatic response to the increasing calls for change.†
“Growing numbers want to and have to work beyond 65. Outdated policies which prevent this group working increase the burden on the already creaking state pension provision and ignores the fact we are living longer and healthier lives.†
“Employers without retirement ages experience a greater focus on performance, a reduction in recruitment costs and the retention of talent, whatever the age.”
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The prospective cost to employers will vary considerably, depending on the nature of the organisation, age profile of its workforce and adequacy of pensions provision. In many cases it will lead to an increase in cost of both insurance benefits and redundancy compensation and there may also be a cost involved in making ‘reasonable adjustments’ when managing any potential disability issues.
One welcome piece of news is that the government has accepted the need for an exemption in respect of group risk insured benefits, so that these can be withdrawn from employees on reaching age 65 (which will rise in line with state pension age). However, this is of less comfort to employers who, for costs reasons, choose to self insure. They will have to objectively justify the withdrawal of such benefits at any given age.
Abolition of the default retirement age is no more than natural justice when state pension age is being raised; otherwise many people would be left in limbo, forced to leave work but unable to claim state pension.
However, this is the de facto situation for many people anyway. Twenty five per cent of men aged 50-64, and 39 per cent of women aged 50-64 are economically inactive. Male unemployment among the over 50s stands at 6.7 per cent and almost half of those have not worked for over a year. Older people face age discrimination in recruitment and anything which can help older people stay in the labour market has to be a good thing.
There is little evidence that abolition of the default retirement age causes problems for employers and many have done so spontaneously ahead of the legislation. Those who do struggle are those which are poor at managing performance and hope to ‘retire out’ problem employees.
CIPD research shows older workers want to keep working, and this desire grows as the retirement age looms ever closer. Much of this is due to financial reasons in these days of squeezed pensions and longer life expectancy, but these workers are also motivated by genuine commitment and enthusiasm for their work and desire to continue to contribute for their employers. Whatever the reasons, getting the most from these experienced employees should be good for business, good for the economy and good for the well-being of the workers themselves.
The guidance for employers on working without the default retirement age is too little too late. The government’s decision to scrap the DRA leaves businesses with a number of difficult practical issues.
Employers accept that more people will want to work beyond 65 as the population ages, but the Government has not recognised the fundamental question, which is how should employers manage retirement on the basis of a performance appraisal. This will be particularly acute in physically-demanding sectors.
The majority of respondents to the Government’s consultation had concerns about the adequacy of existing employment law and about the timescale for the removal of the DRA. This evidence strongly supports the CBI’s concerns, but the Government has ignored these legitimate consultation findings.
While it is helpful that group insurance products are being excluded from age discrimination coverage, we now look to the Government’s employment law review to help businesses, especially smaller ones, to deal with the practical implications of the decision to scrap the DRA. The law of unfair dismissal also needs to be revised and simplified.
We’re delighted that the government have recognised the importance of group risk benefits and are providing an exemption for employers who provide them to their employees. Without this, there was a real risk that employers would seriously reduce or withdraw benefits altogether. Group benefits represent 70% of income protection insurance and 40% of life assurance cover in the UK so it’s important that these valuable benefits are protected.
At the time of writing, there are one or two things that need clarifying and we await full details of the actual regulations. For example it may be that employers still need to review their benefit structure as the government’s statement links the exemption to state retirement age. Of course, this now varies depending on your age group and we’ll have to wait and see for the full impact. Hopefully this won’t be long.