Retention of statutory redundancy pay is essential for older workers

The new age discrimination regulations will have a wide-ranging impact on employers and staff when they take effect in October this year.

The CBI has been lobbying behind the scenes on a range of issues – to secure a result that helps create a culture where employers discriminate only on ability. But too often the original draft proposals – well-meaning in themselves – would have had damaging, unintended consequences. This is well illustrated in the debate around statutory redundancy pay (SRP).

Following extensive CBI lobbying, the government has just announced that the current age-related SRP scheme will be retained. This decision will benefit employers and employees – allowing employers to recognise, through more generous redundancy pay, the difficulties older workers can face in getting jobs.

The government initially suggested that the EU directive did not permit the retention of the current scheme, which compensates older workers more than younger ones. The government has now accepted that retaining the current system is the fairest to older workers who are most vulnerable.

The alternatives were not palatable.

The TUC argued for a uniform weekly pay multiplier, with no age-related payments. But levelling up redundancy pay to that already paid to older workers would have added a major new cost – more than £300m per annum – for already-struggling firms. A windfall for younger workers does not seem a good use of £300m.

While it would have been possible to introduce it at a cost-neutral level – the government’s original preferred option – this would still have led to both winners and losers, with the losers being the more vulnerable, older workers who find it more difficult find new jobs.

The CBI argued that the directive specifically provides for “special protection” for older workers and that there are strong arguments – which the DTI accepted – to suggest older workers need greater protection when they’re made redundant:

Older workers have lower skill levels than younger workers, making it harder for them to get re-employed; many have poor literacy and numeracy skills.

Older workers face a pay penalty when taking a new job after redundancy – on average those over 45 earn 25% less.

Employers used to offer generous early retirement benefits as an alternative to redundancy – today’s pensions climate means this is no longer an option.

Older workers are less likely to get a new job – only 10% of the over-45s get a new job compared to 60% of the under-45s, who find a new job within three months.

The decision about the SRP scheme is good news for employers with more generous occupational provision and for their employees. If the government had harmonised a mid-point, employers would have had little option but to follow suit. Employers would have had to consult staff about the changes – and there would have been many disappointed employees and many unhappy trade unions looking for compensation for losses to older workers.

Firms that follow the state scheme – with the same age bands or multipliers of the same order – will be protected from claims of age discrimination. However, firms using age bands other than those under the state scheme, or proportionally greater multi-pliers for older workers, will find themselves having to justify their schemes objectively.

As with many other aspects of age discrimination regulation, this has been a long, drawn-out and difficult discussion, but the end result has been a victory for common sense. Without CBI lobbying, many employers would be facing costly changes to their redundancy schemes, and disaffected older workers would have found that regulations designed to protect them led to a diminution of their rights.

It is right that older workers – the most vulnerable workers – should be protected where there are good reasons. It would have been grossly unfair if a law designed principally to protect older workers actually left them worse off.

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