If the legal challenge to the UK’s mandatory retirement age succeeds in the European courts employers may have to keep older workers on until they choose to retire. How should you prepare for this? Sally Whittle reports.
Some people can’t wait to retire. But an increasing number of people are continuing to work past retirement age, either of their own volition or because of financial pressures. Changing demographics and economic conditions have meant it has become more common for people to work well into their 70s and even 80s.
Research by Age Concern offshoot, Heyday, shows that nearly 60% of people currently approaching retirement age want to work beyond the state pension age (currently 65). Nearly 10% say they won’t retire at all.
But that is up to employers. Not all businesses are keen to continue employing older workers. Some companies ‘retire’ workers when they reach 65 and many refuse to hire anyone who has passed retirement age.
Alan Beazley, advice and policy specialist at the Employers Forum on Age, says a mandatory retirement age prevents companies from using a valuable resource pool and is irrelevant in an era of longer life expectancy and better health for senior citizens.
Legal status
So what’s the legal position? Since October 2006, UK companies have been obliged to consider requests from employees who wish to continue working past retirement age. However, under the Employment Equality (Age) Regulations, employers do not have to grant such requests or provide any reason for a refusal.
This may change if action brought by Heyday is successful. It is going to the European Court of Justice later this year, claiming that the UK’s mandatory retirement age is discriminatory. If Heyday wins its case it would become illegal for a company to terminate someone’s employment at a specific age, without another reason. “It could easily open up companies to claims of age discrimination,” says Michael Powner, a partner at law firm Charles Russell LLP.
If Heyday succeeds, then there will be no set age for retirement. Instead, individuals may be able to remain in work for as long as they choose and their health allows, and companies may need to completely rethink the way they manage older employees.
Some HR experts believe this is something the industry should be doing regardless of the outcome of the case. “Anyone with any common sense wants the end of the mandatory retirement age,” says Stephen Hall, an interim HR director with experience of managing 70 senior citizens who have continued in employment past retirement age. “Providing an individual is in good health and has mental acuity, there is a lot of skill out there that can benefit companies enormously.”
Graham White, director of HR at Westminster City Council, agrees there is no reason to keep the mandatory retirement age. “We have made so much progress in terms of diversity and equality, only to see that dissipated by a ridiculous piece of legislation that allows unscrupulous employers to ignore those principles,” he says.
White also says that having a ‘greying’ workforce does mean additional challenges for HR departments, but that this needs to be accepted and catered for. “The scaremongers are saying there will be increases in absence and greater need for personalised employment. The quicker we adapt our contracts for the 21st century, the better.”
As older workers become more commonplace, employers need to prepare policies to cope with the possibility of higher absenteeism and insurance premiums. “Whatever you introduce must be sensible, reasonable and applicable to all employees,” says Richard Port, a partner with the law firm Clarion Solicitors. “For example, if you introduce health screening, it’s not reasonable to offer it on demand as a perk until someone turns 65, then insist they are screened every year.”
Port also advises employers to consider the existing health of an employee and the job they do. “In some jobs you will clearly be less able to perform the role as you get older,” he says. “But for the vast majority of jobs, you will likely be just as competent at 67 as at 57. Every case should be treated on its own merits.”
Employers are advised to supply regular health screening for all workers, and establish clear performance monitoring metrics that will pick up any potential issues among vulnerable employees. “All of this has to absolutely be based on performance,” Port says. “If someone is no longer able to perform the job because of their age, then you must treat it in the same way as you would if a younger employee had health or disability issues.”
Employee benefits
More complex legal issues for employers of older workers are likely to be pensions and employee benefits. If you continue to employ people past the age of 65, what happens to their pensions? Do they draw the pension and continue to earn a salary (in which case they will be taxed twice) or do they freeze the pension and live on a salary? Do older workers continue to accrue pension benefits?
Many HR leaders are not sure how they should operate pension schemes for workers over retirement age, says Beazley. “In some respects, there is conflicting advice on key facts such as whether someone builds up new pension rights if they’re working past an age when the pension can be drawn,” he says.
Hall agrees with Beazley that this is a complicated and confusing area. “I’ve had this situation occur numerous times and I advise employees to bring along an independent financial adviser to go through the tax position because it’s so complicated.”
The accepted view on employee benefits generally is that employers must offer the same benefits to all workers, regardless of age. This means that if your company offers health insurance to workers under 65, it should offer the same benefit to workers over 65, even if the premiums are higher. Restricting any benefit on the basis of age could be discriminatory regardless of whether it’s restricted to under-65s or under-40s, Port says.
However, this view may also change in future, following a recent employment tribunal which ruled that restricting access to benefits by age may not be illegal in all cases. In Swann v GHL Insurance Services, Susan Swann, a 51-year-old part-time employee claimed age discrimination because the cost of a private medical insurance scheme, offered by her employer as part of a flexible benefits package, was more expensive for her than for younger colleagues.
The tribunal found in favour of Swann’s employer because it provided flexible benefits rather than a dedicated scheme. Swann’s benefit allowance was the same as other employees of the same grade, regardless of age.
Powner describes the ruling as a “chink of light” for employers who recognise the benefits of retaining older workers but don’t want to become uncompetitive as a result. “While lots of companies recognise the experience and maturity of older workers, and value that knowledge enormously, there is no point in retaining workers and becoming uncompetitive,” he says. “We have to be able to address issues such as declining performance or unmanageable costs associated with benefits. It’s a case of balancing that issue with the need to treat all of our employees fairly, equally and with dignity.”
Key points
Under the Employment Equality (Age) Regulations of October 2006, UK employers should not discriminate against any employee on the basis of their age.
The current UK mandatory retirement age is 65. This means that UK employers can begin the process of ‘retiring’ employees after their 65th birthdays without giving any reason. They can also refuse to employ anyone over the age of 65.
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Although employers are obliged to consider seriously any request from an employee to continue working, under their current terms and conditions or under a revised contract, the employer can refuse an application without providing a reason.
The government is committed to reviewing the UK mandatory retirement age in 2011. However, Heyday has brought a case against the government claiming that a mandatory retirement age is illegal under age discrimination laws. The case was referred to the European Court of Justice in August 2007.
