Grey matters

Employment rights for retirement-age staff, anti-ageism legislation and
changes to pensions provision are all up for grabs as employers struggle with
their demographic destiny. Sue Nickson advises on what it means for HR policies

People are living and working longer than ever before, and the birth rate is
in decline, a trend which is likely to continue for at least 20 years. The
Office for National Statistics predicts 35 per cent of the workforce will be
aged over 45 by 2005, rising to 40 per cent by 2010.

Politicians and employers are having to address the complex consequences of
this demographic trend, for working patterns, retirement ages and pensions. It
seems inevitable that as the population ages, it will become necessary for
people to work longer. Recent challenges to the validity of UK legislation on
unfair dismissal and redundancy rights of the over-65s, together with the
European-led drive towards age equality in the workplace, are adding to the
debate on what are and will be acceptable (and legal) age-related practices in
the workplace.

Current legislation: unfair dismissal and redundancy

Currently, employees who have reached 65, or the normal retirement age for the
job (NRA), are not eligible for statutory redundancy payments and cannot
generally bring unfair dismissal claims (under sections 156 and 109 Employment
Rights Act 1996). The validity of these exclusions has been in question for
some time. Most recently, in Harvest Town Circle Ltd v Rutherford 2001, claims
for unfair dismissal and a redundancy payment were brought by Rutherford, who
at 67 was on the face of it excluded from both by his age. It was argued that
the upper age limit discriminated against men and amounted to unlawful sex
discrimination, which could not be justified.

At first instance, the tribunal agreed. But in August 2002, the Stratford
tribunal – following guidance from the EAT – considered detailed statistical
evidence and found the exclusion did have a disproportionate and unjustifiable
impact upon men.

This decision dealt with the statistics at such length and in such detail,
that other tribunals are unlikely to dispute the point about disproportionate
impact. It would be a brave employer that took on the burden of disproving the
statistics relied on in this case for some time to come, not least because it
would probably be more expensive to do so than just conceding unfair dismissal.
The Secretary of State’s appeal is to be heard by the EAT in May.

Future legislation: age discrimination

At present, there is no legislation outlawing age discrimination, despite
evidence which suggests it is not a minority issue.

A recent report by the Employers’ Forum on Age estimated the annual cost of
ageism to the economy is £31bn.

While the Government has extolled the economic and social advantages of an
age-inclusive workforce, this is supported only by a non-enforceable Code of
Practice, the current version of which is Age Diversity at Work 2002.

However, the Government has until December 2006 to implement its commitment
under Article 13 of the EU Employment Directive 2000 to put in place age
discrimination legislation. In the consultation exercise on the Framework
Directive (Equality and Diversity: The Way Ahead), which closed in January
2003, the Government made certain basic proposals for age discrimination
legislation. A second round of consultation will commence this spring, followed
by a final consultation on the draft regulations in spring 2004. The Government
envisages the regulations will be in force no earlier than December 2006.

The Government proposes that like existing anti-discrimination legislation,
the age regulations will outlaw direct discrimination, indirect discrimination,
harassment and victimisation. The Directive applies to:

– access to employment, self employment or occupation, (including selection
criteria and recruitment conditions in all branches of activity and including

– access to vocational guidance, training, and work experience

– employment and working conditions, including dismissals and pay

– membership of and involvement in a workers’ or employers’ or employment
organisation or any professional organisation

– virtually all categories of worker except, in most cases, the genuinely
self employed. It will outlaw unjustified age discrimination for all relevant
workers, young or old

The Directive allows for justified differences of treatment when a
characteristic constitutes a genuine occupational qualification for the job. It
also provides that differences of treatment on grounds of age may be
"objectively and reasonably justified" by a legitimate aim within the
context of national law. There will no doubt be considerable debate on this
point during the consultation exercise.

The Directive itself gives examples of when discrimination might be
justified, to include allowing:

– Special conditions in respect of certain age groups "in order to
promote their vocational integration or ensure their protection"

– The fixing of minimum conditions of age, professional experience or
seniority in service for access to employment or certain advantages linked to

– The fixing of a maximum age for recruitment based on the training
requirement of the post in question or the need for a reasonable period of
employment before retirement

So far as compulsory retirement is concerned, the Directive will mean
employers will not be able to impose their own retirement age, unless there are
circumstances peculiar to the business which provide an objective

Future legislation: pensions and tax

Increased longevity is posing complex challenges for the affordability of
pensions. While most workers hope for continued rising standards of living in
retirement, as many as 3 million people are estimated to be saving inadequately
for that purpose. At the same time, occupational schemes are under pressure
from rising costs, with some schemes being closed or employer contributions

The Government’s proposals in the face of this are contained in two
principle documents. The Department for Work and Pensions has published a Green
Paper entitled Simplicity, Security and Choice: Working and saving for
Retirement. The Treasury and Inland Revenue have also published proposals for
the simplification of pensions taxation in Simplifying the taxation of
pensions: increasing choice and flexibility for all. Both principal documents
are consultation papers. The consultation for the Green Paper closed on 28
March. The consultation on the tax proposals closes on 11 April.

Although there are no proposals to increase the state pension age, the Green
Paper does propose that people should be encouraged to work past 65 by
developing the concept of flexible and phased retirement. It is also proposed
that from 2010, people should gain at least 10 per cent for each year that they
delay drawing their pension (compared to 7.5 per cent now). Further, people
should be allowed to remain in the same employment while receiving any pension
built up in that job (this is prohibited under the current tax system).
Tax-efficient early retirement, except in cases of ill health, will move from
age 50 to 55 from 2010. The Government hopes to introduce the tax changes via
legislation from April 2004.

The combined effect of these age-related issues will be profound. Employers
need to be prepared for the changes ahead if they are to make appropriate and
timely changes to policies, procedures and practices. Those who participate in
the current consultation process on the scope and shape of impending age
discrimination and pension legislation, will be contributing enormously to the
objective of having workable and effective legislation.

Sue Nickson is head of employment at Hammonds

Over 65s dismissal and redundancy

– Pending appeal, employees over the
NRA, or if there is none 65, can bring claims for unfair dismissal or
redundancy. This is regardless of whether there is a contractual retirement
age. It is likely that all such claims will be stayed during the appeal
process, which could go as far as the ECJ and may therefore take many months to

– Do not assume that all employees will wish to retire at the
NRA or 65. Communicate with those approaching retirement age to discuss their
expectations and needs

– Explore possibilities for alternative employment and/or
working patterns where necessary or desired

– Do not rely on impending retirement to resolve problems
relating to discipline, performance or sickness with older employees; follow
fair and appropriate procedures in all cases. Assume a genuine and fair reason
for dismissal will be required, and that a fair procedure towards dismissal
must be followed

– Do not select for redundancy by reason of age

Many believe older workers bring
benefits to business such as:

– Improved staff retention rates

– Higher staff morale

– Decreased short-term absenteeism

– Higher productivity

– Improved public image

– Widened customer base

– Increased breadth of skills

Avoiding ageism in the workplace

– Review the wording of job ads to
ensure they do not contain age discriminatory conditions

– Review or draw up workable policies to avoid any inference of
discrimination which could be based on age

– Agree a fair and consistent retirement policy with employees.
The policy should not impose a ‘normal’ or contractual retirement age unless
there are particular business circumstances which provide an objective
justification, and should include the use of flexible, extended or phased
retirement options and/or flexible work patterns such as part-time work, job
sharing and secondments

– Regularly analyse the age profile of the business to assess
the age diversity of the workforce

– Review pay, incentive and reward schemes to ensure they
objectively and fairly reward skill and productivity, rather than longevity

– Review redundancy selection criteria and policies to ensure
people are not selected for age-related reasons

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