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SmallBusiness.co.uk looks at the practical issues that will be faced by company directors when the DRA is binned.

By Jane Moorman, partner, Employment Department, Howard Kennedy Solicitors

In 2009, 100,000 employees were forced to retire because they had reached age 65, despite the fact they wanted to continue in employment. Forced retirement has just got much harder as the government confirmed last month it will be scrapping the Default Retirement Age (DRA) with effect from October 1st 2011.

Joy and despair have greeted the departure of the DRA depending upon the interest group being represented. The Institute of Directors see it as an attack on entrepreneurs and business in general and have warned that jobs may be at risk because of the burden on employers. By contrast, Age UK sees it as a positive step, particularly given the financial pressure on many individuals who have insufficient pension to meet their needs.

Employers will be grateful the government accepted that providing insured benefits, such as medical insurance, would place a significant financial burden on employers if they have to extend such benefits to the over-65s. As a result, when the regulations are introduced scrapping the DRA, there will be an exemption in respect of insured benefits. Essentially, it will not be regarded as age discriminatory not to provide these insured benefits to the over-65s.

Employers will need to act quickly to tackle the practical issues that are thrown up by the removal of the DRA. What benefits will the over-65s receive? What should they do about succession planning? How should they tackle poor performance? Should they bring in testing for satisfactory performance at a certain age? What approach will they take to training?

Transitional arrangements
Employers who want to dismiss staff by reason of retirement and who have employees who will be age 65 on or before September 30th 2011 will need to have served them with six months notice of their intention to terminate their employment on the grounds of retirement by no later than 30 March 2011. If notice is served between March 30th and April 5th 2011, employers will need to use the DRA short notice provisions.

Where an employer has an employee who will be 65 on or after October 1st 2011, they will not be able to use the DRA procedure to dismiss by reason of redundancy as this will not be one of the fair reasons for dismissal. At that point, employers will need either to have one of the usual fair reasons for dismissal such as performance or redundancy. Alternatively an employer may still have their own Employers Justified Retirement Age (EJRA) as a reason for dismissal. However, they will need objectively to justify this policy. While an EJRA may be justified in certain physically demanding jobs, for most jobs it will be difficult to justify such an approach simply because an employee has reached a particular age. Even in physically demanding work, employers are likely to need to carry out an assessment before in fact retiring staff.

Practical issues
There are a variety of reasons why the DRA has been valued by employers in the past. Common reasons for wishing for its retention are performance issues and succession planning. Automatic retirement at 65 is seen as a way of removing staff that may be past their best without the indignity of undergoing a performance monitoring process. This can be particularly invidious for long-serving, loyal employees. The DRA also allows for open discussion of succession planning in an orderly manner, and without any sense of criticism of those who are to relinquish the reins to younger colleagues.

Employers who find themselves with staff they do not wish to retain and who will be 65 before October 1st will need to start drafting their DRA notices straight away.

Employers faced with staff who cannot simply be dismissed when they reach 65 will need to ensure managers address performance issues of their staff, regardless of age. If an older worker is not performing, they will not be able to coast quietly to retirement. They will now need to face the same type of monitoring and assessment their younger colleagues face.

In terms of succession, ACAS encourages employers to discuss with employees what their future plans will be. These open discussions could be part of an annual appraisal. Asking about future plans should not simply be a question for older employers, however. The aspirations of all an employers should be looked at, and not merely those who are approaching an age at which their employer believes they should retire.

Which employers will be hit by the removal of the DRA? The public sector, with its history of generous final salary pension schemes, may see employees continuing to retire when their pension kicks in. By contrast, those in the private sector are more likely to find employees wish to be retained in work to supplement what may be a meagre pension. Other factors may be associated with marriage and children. Those whose children who have grown up and left home or who find themselves 65 and single may prefer to remain at work rather than enjoy a more solitary life away from the hubbub of a busy work life. Similarly, those who are on a second marriage and who have a new set of children later in life may also need to continue working to meet the costs of providing for their second family.

Psychometric testers may want to look for a new set of qualities to identify staff that are likely to want to retire at 65. Those questions at job interviews about hobbies and home life might taken on a whole new significance as they may help to identify those who will willingly depart when they hit their mid 60s with glee rather than despair.

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