End of line for the default retirement age
The Government has confirmed today that it will remove the default retirement age (DRA) of 65 and will proceed with its plan to phase it out between 6 April 2011 and 1 October 2011.
The Government has published its long-awaited response to the recent consultation on the issue, alongside new ACAS guidance, which is intended to help businesses adapt to the removal of the DRA.
The Government response confirms the following:
- The administrative procedures associated with the DRA (such as notifications of retirement and the right to request working past retirement age) will be removed.
- ACAS has produced new guidance for employers, "Working without the default retirement age", which provides advice on how employers can manage the transition stages and new procedures. Further background information and research, together with updated DWP guidance for employers on workforce management without a fixed retirement age, is available at Business link age positive website.
- The Government remains of the view that 6 months is the optimum time period that will ensure fairly balanced transitional arrangements. While it recognises that many businesses would appreciate further time to prepare for the change, given the costs of the transition period, the Government believes that these costs will soon be offset by the benefits to be derived from the removal of the DRA and associated procedures.
- As there is a risk that employers may cease to offer insured benefits as a consequence of the removal of the DRA, it will introduce an exception to the principle of equal treatment on the grounds of age for group risk insured benefits provided by employers.
What does this mean for employers?
Employers now need to take urgent steps to respond to this development:
- Get to grips with the proposed transitional provisions. The Government intends the new regulations to take effect from 6 April 2011. From this date, subject to parliamentary procedures, employers will no longer be able to issue notifications of retirement using the DRA procedure. Where notifications have already been made prior to 6 April 2011, employers will be able to continue with the retirement process as long as the retirement is due to take place before 1 October 2011. No retirements using the DRA procedure will be possible after 1 October 2011.
- Decide whether your organisation is going to retain a retirement age. It may still be possible to retire an employee lawfully at a set age provided that the retirement age can be objectively justified (i.e. it is a proportionate means of achieving a legitimate aim).
- Undertake a review of contracts and policies. Once you have decided whether or not to retain a retirement age, this needs to be reflected in all employment documentation. Employers may also need to implement new policies to manage the transitional process.
- Communicate the changes to the workforce and provide training for managers. Employers will need to inform staff about the changes to the retirement process and how they might be affected.
- Consider how you will approach discussions about retirement plans. ACAS provides guidance on workplace discussions about retirement and a framework for carrying out such discussions.
- Consider your pension scheme. There are likely to be implications for employers with pension schemes. Many schemes have in the last 5 years introduced flexible retirement rules but these will need reviewing and those without such rules will, almost certainly, need to insert flexibility regarding retirement ages. The anti-age discrimination laws generally permit flexible retirement but do mean care will still be required in finalising the detail of any rules.
The removal of the DRA will have a significant impact on most workplaces. We will produce a detailed note in the coming days and will be covering this topic (among others) in our Annual HR Planner on Wednesday 26 January 2011. In the meantime, if you would like to discuss this development further, please contact Nicholas Thorpe (Employment Partner) and David Gallagher (Pensions Partner).