Retirement and the employer

FRANCES BARKER of Blocks assess the likely long-term impact on employers should the default retirement age eventually be abolished

Retirement can be a great chapter, given enough health and enough money. Normal health in older age has improved hugely over the past few decades, with life expectancy rising steeply.

However, this lengthening of retirement caused by the postponement of death means that inevitably there is not enough money to go round. My life expectancy is over 20 years longer than my mother’s, an extra 20 years for the state pension pot to pay out. One in four boys born today can expect to reach 100 years; should they be expected to work for 40, 50 or 60 years of that time?

The growing unaffordabilty of the present pension system, particularly the public one, has been obvious for years, but pensions are a very long term issue and politicians think short-term about unpleasant decisions. However, the unaffordability has reached the point where the Government has to grasp the ageing bull by the horns.

Hence the current review about scrapping the default retirement age in the UK of 65 years. At least we are not alone. The European Commission says that 27 member states need to increase their retirement ages to 70 by 2060, though no other country has current plans beyond age 68.

At present under Labour’s Employment Equality (Age) Regulations 2006, employers can force staff to retire at the age of 65, subject to a process. The likely result of the review seems to be that a default retirement age will be phased out altogether from next April, before becoming unlawful on October 1, 2011. Older workers will then only be dismissed lawfully on the same grounds that would apply for any younger employee.

As workers age, particularly once retirement becomes less affordable, incapability dismissals may multiply, with the employer risking an unfair dismissal and age discrimination claim. What will be the measure of incapability; will it really be reasonable to ask the same performance of a 70 year old as a 20/30/40 year old? If they are paid the same, why not?

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And once people have the right to continue working, the Government will feel justified in reducing pensions because people can choose to work. Then, the choice will become unaffordable and people will have to work, and it is employers who will have to deal with ageing in the workplace and manage dismissal if the employment no longer works for the business.

Decisions taken now will affect most of us and ours for many decades. We all know that cost considerations will mainly determine the outcome of the review. However if, like many, you are concerned about the retirement age issue, it’s worth putting in your pennyworth and responding to the consultation / Consultations/Retirement .