The Government has announced today that it is planning to scrap the default retirement age (DRA)from October 2011. There will be a consultation exercise before any changes are implemented. It is undoubtedly the case that the current economic climate, and in particular the national debt, is the primary driver behind the decision. Working longer means paying more tax and, in many cases, deferring drawing pension, as a consequence of which the economy benefits.

When will this happen?

Given that an employer must give six month’s notice before forcing someone to retire on the grounds of age, this means that the changes could be felt from 6 April next year, by which date under the current rules, notice would have to be given to employees of the intention to retire them on 6 October, the date on which the proposed change would have effect.

This means that employees who are currently due to retire at age 65 on or after 6 October 2011 will be able to work on beyond age 65, if they wish.  Except in a few cases, where a contractual compulsory retirement age can still be justified, employers will not be able to force retirement upon them, as they may presently do by relying on the DRA and the dismissal procedures set out in s. 98ZD and Schedule 6 of the Employment Rights Act 1996.

Currently, an employer can force an employee to retire at the age of 65 without paying any financial compensation. In essence, their only obligation is to give notice of the intended retirement of the employee at least six months before their 65th birthday and where necessary, to hold a meeting with the employee to discuss any request to work beyond that age. At the end of that meeting, it is at the employer’s discretion whether or not to terminate the employment or allow the employee to work on. While a significant number of employers properly consider and grant such requests, many are frankly still ageist and simply go through the motions and then refuse them. The employee is then retired at age 65, with no recourse.

The importance of Performance Management

With the Government’s decision to abolish the default retirement age, employers will need to consider and possibly re-address their approach to performance management in managing their workforce. At present, requests to work beyond age 65 are frequently refused because the employee is perceived to be under-performing, yet no formal or indeed informal performance management of the employee has taken place. Managers are often content to use retirement as a means to rid themselves on an under-performing employee.

The removal of the DRA means that the retirement route will no longer be available and employers and managers will have to look to their performance management procedures as a means of addressing poor performance or ill health amongst the older members of the workforce. Where in dismissing such an employee, an employer is unable to rely on evidence of poor performance or has made no attempt to deal with an employee's performance issues, this could lead to a tribunal finding against them on grounds of unfair dismissal and age discrimination.

Act now

Some employers organisations appear to fear the proposed changes. However, the removal of the DRA can be easily coped with, if managers actually performance manage their staff, something many of them display a marked reluctance to do. Performance management is a legitimate means of dismissing under-performing employees due to their lack of capability, which is a potentially fair reason for dismissal. Failure to employ such techniques, which are easily taught, means that many managers suffer in silence with under-performing staff, or through reacting inappropriately, end up facing claims of unfair dismissal. Performance management will now be forced upon managers not just in relation to older staff but the whole workforce, as to performance manage only older workers would no doubt lead to claims of age discrimination. Given the short lead time available before the DRA is abolished, this sea change in many organisations will have to start now.

Further Information 

Anderson Strathern LLP undertakes a wide range of employment law and HR training for its clients and others, including training line managers in the use of performance management procedures and techniques.

For further information please contact Alan Masson, Claire Hendry or your
usual contact within the Employment team.
 

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