Phasing out the UK default retirement age: legal update

In our last update, we reported that the UK Government had issued its response to its consultation “Phasing out the Default Retirement Age”, confirming that from 1 October 2011 there will no longer be a default retirement age (DRA) of 65. Draft Regulations were laid before Parliament in February but after much criticism over how they should be interpreted, a revised draft of those Regulations (Employment Equality (Repeal of Retirement Age) Regulations 2011) have been made available and are due to come into effect 6 April 2011. Several of the Government’s original proposals set out in their response to the consultation (and as set out in our last update) have been changed. In particular, changes concern when the last notice of retirement can be served and when the last date it can expire. There was some confusion over retirement of the over 65s but this was a drafting error and has been rectified in the revised draft Regulations.

Confusion about when notice of retirement can expire

Under the current rules, an employee must be given a minimum of six months’ and a maximum of twelve months’ notice to be compulsorily retired. The Government first indicated in its response to its consultation that because the DRA will not apply from 1 October 2011, an employer who wishes to effect a compulsory retirement would need to issue the retirement notice by 30 March 2011 (or before 6 April 2011 under the “short notice” rules). It was understood that this meant that such employees would have to be retired on or before 30 September 2011.

On 17 February 2011, ACAS issued a Guidance update indicating this view was not entirely correct. The ACAS Guidance indicates that employers will in fact have until 5 April 2011 (but no later) to issue notice to an employee of compulsory retirement and that notice (being no less than six and no more than 12 months under the current rules) may run its course and so may expire after the 30 September 2011 deadline. Short notice notifications will not be permitted on or after 6 April 2011. The revised draft Regulations confirm this. 

The ACAS Guidance explains that retirements notified on or before 5 April 2011 will continue to completion as long as:

  • the DRA procedure, as outlined in the current 2006 Regulations, is followed (ie employers must give the correct notice and must continue to give serious consideration to any request by the employee to continue working past retirement age); and
  • the retiring employee reaches 65 or the normal retirement age (if higher than 65) by the 30 September 2011.

To be clear, this means that those employers giving the maximum twelve months’ notice from 5 April 2011 will be able to compulsorily retire their employee on or before 5 April 2012* (ie more than half a year after the 30 September 2011 deadline). This is provided the relevant employee reaches age 65 before 1 October 2011. An employer serving the minimum 6 months’ notice on 5 April 2011 should ensure that the notice expires on 5 October 2011* to avoid a penalty for giving short notice.

Additional extension to retirement date under revised draft Regulations

The revised draft Regulations introduce new provisions to clarify the right to request working beyond retirement which is permitted under the current rules. The revised draft Regulations provide that no further requests can be made on or after 5 January 2012. Since any request to work beyond retirement must be made at least 3 months and no more than 6 months before the notice expires, an employee served with 12 months’ notice on 5 April 2011 (the last date notice can be served) must make his request to work beyond retirement by 4 January 2012.  

 5 October 2012 – the last possible date of retirement under the current rules

Under the current rules, an employer can agree to a 6 month extension of the retirement date without having to issue a fresh notice of retirement. As no notices of retirement can be made after 5 April 2011, in practice, an employer will, after that date, only be able to grant a 6 month extension. A 6 month extension to an intended retirement date of 5 April 2012 would take the retirement date to 5 October 2012*

What this means in practice

The practical consequences of the phase out stage under the revised draft Regulations may best be highlighted using examples.

Scenario A: Employee turns 65 at any time before 30 September 2011. Notice of at least six months has been given to him no later than 5 April 2011. He can be compulsorily retired even if the notice expires after 30 September 2011.

Scenario B: Employee turns 65 after the transitional period has ended, e.g. 1 October 2011. He cannot be compulsorily retired under the DRA procedure, regardless of whether notice was given on or before 5 April 2011, as he did not reach retirement age by 30 September 2011.

Scenario C: Employee turns 65 by 30 September 2011. Notice is not given until 6 April 2011 or later. The employee cannot be compulsorily retired under the DRA procedure as the notice was not issued in time. The late notice will not be deemed to be short notice, as this will be abolished as of 6 April 2011, so the employer is not at risk of a compensation payment.

Scenario D: Employee turns 65 by 30 September 2011. 12 months notice served on him on 1 April 2011. Retirement date is therefore 1 April 2012*. He can request to work beyond retirement at any time between 1 October 2011 and 31 December 2011 (being more than 3 months and no more than 6 months before the intended date of retirement). If the employer agrees to a 6 month extension of the retirement date, the new retirement date will be on 1 October 2012*.

If an employer seeks to retire an employee who only reaches retirement age after 30 September 2011, he risks a claim of age discrimination unless he can provide objective justification for retirement at that age. An employer would have to rely on the grounds of capability or conduct or “some other substantial reason” to dismiss an employee fairly if he felt that the employee’s age rendered him unfit to continue his job. The chances of employers facing age discrimination claims in the future will no doubt increase once the revised draft Regulations have come into force. 

Good news for employers on insurance benefits

As we mentioned in our previous alert, the Government has taken into consideration employer concerns regarding group risk insured benefits. Regulation 2 of the revised draft Regulations specifies that it is not unlawful for an employer to bring to an end employer-provided insurance (class or otherwise) or related financial service when the employee reaches the age of 65 or the State Pension Age (whichever is greatest). This exemption will therefore cover employer provided group risk insured benefits such as income protection, life assurance, private medical cover and sickness insurance. It appears that it does not cover self insured arrangements. Without this provision, employers would be obliged to continue expensive insurance schemes or face a claim of age discrimination. Note that there is no comparable exemption which applies to other employee benefits such as employee share schemes or those which accrue with age such as enhanced redundancy schemes. These must be offered to all employees regardless of age.

Summary of key dates

5 April 2011 – the last date on which retirement notices can be served.

30 September 2011 – only employees who are 65 by this date can be retired under the current rules.

4 January 2012 – the last date on which an employee can make a request to work beyond retirement.

5 April 2012 – the last date on which notices of retirement can expire.

5 October 2012 – the last possible date of retirement under the current rules (given a 6 month agreed extension of 5 April 2012 retirement date).

What should employers do now?

  • Read the new ACAS Guidance and the revised draft Regulations.
  • Consider whether to issue any retirement notices by (and including) 5 April 2011. Remember that the employee must have reached the age of at least 65 by 30 September 2011.
  • Review any retirement notices already sent out to check the proposed retirement date does not fall after 5 April 2012.
  • Consider whether employment contracts need to be amended.
  • Consider the effect on your business of having an older workforce – will you need to put any measures in place to accommodate this? (See our previous alert for more on this).
  • If you wish to retire an employee by using an objectively justifiable ground, this will need to be considered carefully. (See our previous alert).

* NOTE – there is some uncertainty as to how to calculate the date of retirement upon expiry of the notice of retirement. The dates given in this alert assume that the day on which notice is served does not count. These dates are in line with BIS guidance.

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