Retirement

The Employment Equality (Age Discrimination) Regulations 2006 come into force on 1 October 2006. These set a national default retirement age of 65 and impose procedural requirements for retirement.

At the time of writing (April 2006), draft regulations have been published and are believed to be in their final form; however, they have still to be passed through Parliament and may be subject to change.

Aim of the policy

Under the regulations, all employers must comply with the statutory consultation procedures whenever an employee retires. Failure to do so may allow employees to claim for automatic unfair dismissal and/or for up to eight weeks’ pay.

It is therefore essential that all employers draw up a retirement policy, even if it commits the company to no more than the minimum statutory procedures.

Who is it for?

All employees, other than fixed-term employees due to leave before retirement, have the potential to retire from your company and will need to be covered by the policy.

Essential elements

Although not required by law, the policy should set a normal retirement age. This will help introduce certainty and reduce the scope for employees to argue that there is some higher retirement age established by practice.

The policy must set out the retirement procedures, which must be the same or more generous than the statutory minimum procedures.

Setting retirement age

The regulations set a national default retirement age of 65 (to be reviewed in 2011) for both men and women. This applies whenever it is not possible to show that a different normal retirement age exists.

Employers are always free to set a normal retirement age higher than 65. It may also be possible to set a normal retirement age below 65, but only when this is objectively justifiable. For example, a normal retirement age of 60 for airline pilots may be objectively justified, since some other countries prohibit pilots over the age of 60 from flying planes. However, proving objective justification is likely to be very difficult for the majority of employers.

Alternatively, an employer is free to not set a retirement age at all.

Retirement procedures – duty to consider

If employer and employee mutually agree that retirement shall occur at any earlier date, this avoids the need for further consultation.

Otherwise, the principle is that an employer must consult with employees and give them the opportunity to request the postponement of retirement. If a request is made, the employer must consider it, but need not agree to it. In this, the process is similar to requests for flexible working. Providing the procedure is fully complied with, the employee will have no claim for unfair dismissal, whatever the employer’s reasoning was. There is no obligation for the request to be considered in good faith.

The timeline for a retirement process is as follows:

Employer to notify the employee of the intended date of retirement, and his right to request a postponement of retirement
Time: 6-12 months before the employee’s expected retirement date
Employee may request the postponement of retirement, setting out the proposed terms
Time: 3-6 months before retirement
If there is no request, the process is complete.
If a postponement is requested, the employer must either accept the terms suggested or hold a meeting with the employee to discuss the request. The employee has a right to be accompanied, non-compliance with which will allow a stand-alone claim for two weeksÕ pay.
Time: within a reasonable period of receipt of the request
Following a meeting, the employer must provide a notice of its decision. You do not need to give reasons, although you may wish to. If you do, be very careful that they are not discriminatory, or you could provide grounds for an age (or other) discrimination claim.
Time: as soon as reasonably practicable after the meeting
The employee must be given the opportunity to appeal the decision
Time: as soon as reasonably practicable for the employee to appeal, and within a reasonable period for the employer to hear it

There are transitional provisions affecting the time limits for notification where employees are due to retire between 1 October 2006 and 1 April 2007. These are explained in DTI guidance on retirement age.

Consequences of partial compliance

Any failure to comply will make the employer liable to a claim for up to eight weeks’ pay.

However, if the employer misses the deadline of six months before retirement for the sending out of the notice, it can and should still send a late notice at any time up to two weeks before retirement.

At any time after this six months deadline, the employee can kick-start the process by sending a request of his own volition.

If the employee is eligible to be retired but the employer fails to fully comply with the procedure, it is up to the tribunals to decide whether the dismissal was actually a retirement (and thus fair) or not. This will be decided based on whether there has been partial or attempted compliance (including whether there was late notice, and how late).

Failure to give even late notice, or to consider the request or to have an appeals process will make the dismissal automatically unfair.

Accepting the request

If an employer agrees the extend employment, this can be indefinite or for a fixed period. In either case, the employer will have to undertake the same consultation process before the final retirement occurs. A fixed period effectively creates a new normal retirement age, meaning notice must be given six to 12 months before the expiry; by contrast, indefinitely extending retirement will allow the employer to select when to kick-start the retirement process.

Key legislation

In the Employment Equality (Age Discrimination) Regulations 2006 (draft only)

Schedule 6 sets out the minimum procedure; and
Regulation 30 and Schedule 8 insert new sections, making retirement a fair reason for dismissal, into the Employment Rights Act 1996

Useful web links

Acas Guidance on Age Discrimination

Notes on the regulations