Employment: When is it time to go?

The coalition government has recently indicated that a consultation will take place in relation to a proposal to abolish the current default retirement age of 65 in April 2011. Equality rights campaigners have sought to challenge the legality of the default retirement age but have ultimately been unsuccessful. Last year, the High Court eventually ruled that the default retirement age of 65 is not contrary to the Equal Treatment Framework Directive.

The Court did acknowledge that the current default retirement age of 65 was too low, in view of the current economic circumstances, and took into consideration that the default age was going to be subject to review by the government in 2010. Therefore, despite the High Court's ruling that the default retirement age of 65 is lawful, it appears that change is inevitable.

Although much has been made of the obvious impact of the current controversial position whereby employers are able to legally dismiss employees solely because they have reached the age of 65, this article takes a closer look at how the concept of a default retirement age impacts employers and what the potential consequences would be of its abolition.

One of the clear benefits to employers of the current law is the ease with which they are able to plan for the retirement of employees and as such, employers will find succession planning in the future a lot more difficult. With older employees remaining in employment longer, this could also lead to younger employees becoming demotivated by the knowledge that their career progression is likely to be slowed by an ageing workforce. Employers are also likely to see a higher absence rate as the average age of their workforce increases.

Perhaps of greater potential worry for employers is that their costs are likely to increase, in relation to the provision of benefits for employees who are over the age of 65. The cost of continuing to provide benefits, such as life assurance and private medical cover, will increase significantly for employees aged 65 and above, if employers are in fact able to obtain cover at all. This may mean that the increased costs associated with retaining employees who are beyond age 65 outweigh the benefit the employer would gain by retaining their skills and experience.

Currently, employers are known to use the default retirement age as a means of dismissing underperforming older employees in a dignified manner. Unfortunately, an ageing workforce may be less likely to adapt to changes in the workforce, such as the impact of modern technology on the way businesses will operate in the future. If employers become unable to dismiss employees easily and in a dignified manner via the retirement route, employers will be forced to use performance management to ensure older workers remain productive.

The unfortunate consequence of this will be the likelihood of employers being left with difficult decisions to make in relation to underperforming older workers, which could lead to upsetting and undignified ends to longstanding employment relationships.

One of the main reasons why the current legislation in relation to compulsory requirement has been subject to prolonged criticism, is that the procedure is illogical and in stark contrast to general employment law principles. While employers are bound to consider requests from employees to work beyond the age of 65, if employers choose not to grant the request they do not have to provide a proper reason for doing so. This highlights the contrast between the obvious unfairness in the system for employees, and the biggest advantage of the current system for employers, flexibility.

When deciding how best to amend the current legislation, it would be prudent for the government to consider an increase in the default retirement age, rather than a complete abolition. It would also be sensible to ensure any increase will be periodically monitored and adjusted as required, to ensure that the chosen default age remains in tune with rising life expectancy and other changes in society.

The main objection to the current legislation stems from the unfairness in the current system. It must be remembered that employers regularly agree to employees' requests to continue working beyond 65. The unfairness stems from situations where a request to continue working is declined without adequate or reasonable explanation. It may therefore be fairer when balancing the needs of employers with older workers, to consider amending this aspect of the current legislation, rather than the concept of a default retirement age itself.