The Default Retirement Age has become a particularly contentious issue in recent months. This relatively new rule has attracted significant controversy with clashes between age concern groups, business organisations and the government.
The controversy stems from recent talk of a change to the Default Retirement Age, for which a case to test its legality has already been brought to court. This could be a significant issue for your and your company, so what is the Default Retirement Age, and how does it affect your business?
What is the Default Retirement Age?
On 1 October 2006, the government introduced the Employment Equality (Age) Regulations. Under these rules, employers can force an employee to retire at the age of 65. This is known as the Default Retirement Age.
Although firms are free to hire and continue to employ workers beyond the age of 65, they are no longer under any obligation to provide an explanation if they choose to force them into retirement – or, more controversially, to provide any kind of payout. Despite the fact that this amounts to compulsory redundancy in all but name, employers do not have to make any payment to the worker.
It is thought that around 25,000 individuals are forced to retire every year as a result of the rules. The charity Age Concern has been among the most prominent critics of the rule, suggesting that it undervalues the contribution made to businesses and the economy as a whole by older workers, and claiming that it is incompatible with European rules on age discrimination.
What are your responsibilities as an employer?
You are not obliged to sack workers once they turn 65. However, you are free to do so if you so wish. You have very few obligations in this regard; you need not offer any severance payment or other retirement package unless this is already stipulated in the employee’s contract.
That said, if you choose to make use of the Default Retirement Age you should think carefully about the way you conduct the process. A sense that employees have been poorly treated is likely to cause friction and a loss of morale in your workforce as a whole. Springing retirement on an employee is unfair, and can cause significant problems in the long-run. It is always better to inform the employee of your intentions well in advance, and to explain the decision to the rest of your workforce when this is appropriate.
It is also important to remember that you are legally required to consider any reasonable requests for retirement to be postponed. Although you are not under any obligation to accede to such a request, you must be able to show that you have given it due consideration.
What are the proposed changes?
There are moves afoot to have the Default Retirement Age scrapped. Despite the fact that more than 70 per cent of businesses want to keep it, many charities and some government members are pressuring for its abolition.
The government has commissioned a major survey into the impact of the Default Retirement Age. The Survey of Employers’ Policies, Practices and Preferences relating to age (SEPPP) will investigate the way in which the rules are used by employers, and is seen by many as a major step on the road to its abolition.
The call for submissions to the Survey has now expired. Although there is no set date for publication of the report, it is expected that the group will finish their investigation by the end of 2010.
What are the latest developments?
Towards the end of last year, a High Court judge ruled that the Default Retirement Age is, in fact, compatible with European directives on age discrimination. The case had been brought by Age Concern and Help the Aged in an attempt to have the regulation overthrown.
Despite the ruling, and despite constant cries of ‘no more regulation’ from business groups, it is presumed that the Default Retirement Age will soon be abolished. At the very least it is thought that more stringent rules will be introduced to ensure that the regulation cannot be used as a way of justifying age discrimination. This speculation has been fuelled by the government’s decision to bring to Survey forward by a year.
In the meantime, businesses must make individual decisions regarding whether or not to make use of the Default Retirement Age. If you have a genuine reason for letting an older worker go, you should ensure that this is properly explained to them and to the rest of the workforce. Similarly, you should think hard about sacking workers for no other reason than that they are turning 65. Finally, remember that sacking an employee because of their age is illegal in almost every other circumstance.
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