The end of compulsory retirement

Exactly a year ago, Strategic Risk highlighted the possibility that the Default Retirement Age (DRA) in the UK would be scrapped. The demographic pressures, the perceived inadequacy of pension provisions, and likely conflicts with age discrimination legislation made it look as though it was only a matter of time before employers were no longer able to compel workers to retire at the age of 65.

And indeed, one of the first acts of the new UK coalition government was to announce the abolition of the DRA. From 6 April 2011, no forced retirement notices will be able to be issued, and the DRA will be scrapped altogether in October 2011. The government is also planning to raise the age at which the state pension can be claimed to 66 from 2016, making it inevitable that most people will continue working for at least a year longer than at present.

Throughout Europe, governments are grappling with exactly the same problems of aging populations, longer life expectancy, and the difficulty of funding state pensions into the future at current levels, and most are planning to raise the retirement age, either rapidly, or in steps. France, with the most generous retirement age in Europe, suffered nationwide strikes in September as unions battled to force the government to scrap plans to raise it from 60 to 62, while Greece has seen equally bitter protests over pension reform. But the consequences of running out of money to pay pensions are equally vivid. In Estonia, the government was forced to suspend its contributions to the ‘second pillar’ of the pension system in 2009 – with the result, according to statistics published by the BBC, that both male and female employees are now working up to three years beyond the official age of retirement.

Whether the inevitable raising of retirement ages happens swiftly or slowly, under protest or peacefully, employers are faced with the question of how to manage an older labour force. In Britain, as we reported last year, there were two opposing schools of thought among employers – between those who were concerned by the extra costs and risks, and those who considered these worries to be exaggerated, and certainly outweighed by the benefits of allowing people to stay on.

With the government’s announcement of the abolition of the DRA, the controversy has, if anything, heightened, with Rachel Krys of the Employers’ Forum on Age describing the move as ‘an incredible leap forward in employment practices’, but Graeme Leach of the Institute of Directors saying ‘we greatly regret the government’s decision.’ A consultation period lasts until the middle of October this year.

The key thing to remember for organisations preparing to adjust to the new regime is to avoid any hint of age discrimination when looking for redundancies or dismissals. Grounds for dismissal will be exactly the same for someone over the ‘retirement age’ as they will be for someone younger. And although a worker may still be compulsorily retired, an objective case will have to be made for doing so. It would be a rash employer who came up with “he’s getting a bit past it” as a justification, rather than aducing clear, specific evidence. Certainly, managers will now have to document performance and manage more carefully, if they are to avoid a rash of claims under age discrimination or unfair dismissal rule. And it will no longer be possible to assume that an underperforming worker will be retiring in a couple of years, and so avoid taking action. Equally, the already tangled arguments over what constitutes ‘a legitimate aim’ that can justify discrimination by age, are likely to become even more complex.

A survey, Managing an Ageing workforce, published this September by the Chartered Management Institute (CMI) and the Chartered Institute of Personnel and Development (CIPD) found that only 14% of managers and HR professionals considered their organisation to be very well prepared to cope with the issues caused by an ageing workforce, despite the fact that over 90% of the organisations surveyed said that they valued their older workers. Equally, only 7% of organisations offered training on managing older workers, despite 47% thinking such training was necessary.

At the time the survey was conducted, 57% of organisations were using the DRA of 65 as the basis of their retirement policy, with only 16% having no fixed age of retirement. Quite clearly then, a large number are going to have to review their policies and consider what changes to practice, and above all to culture, will have to be made. The survey showed that there is much work still to be done, and concluded:

“ Despite the case study examples of good practice the survey findings suggest that many managers lack awareness of their organisations’ policies relating to the employment of older workers. Line managers and middle managers in particular are not clued-up about retirement policies. They are also the groups most likely to find managing older people a challenge. It is likely they would benefit from training to help them manage older workers more effectively as well as specific training on approaches to retirement.”