Until 1st October 2011, most businesses adopted the default National Retirement Age (NRA) of 65 for their staff. Under the then law, employers had the right to retire employees at 65, provided they followed the statutory retirement procedures. If such procedures were followed, such a dismissal would be neither unfair nor amount to age discrimination.
Under external pressure from Europe and some internal pressure from organisations like Age UK, the Coalition Government scrapped the NRA and the statutory retirement procedures. On the same day that the NRA ended, the Equality Act 2010 (EqA) consolidated all discrimination laws and changed the way that businesses deal with retirement.
With people living longer, the abolition of the NRA was generally welcomed by those that did not want to, or could not afford to retire. And, for many employers, the new legislation will not prove an issue: hanging on to capable and experienced workers for longer can only be good for business.
But, over the next few years, a number of problems may arise. Firstly, businesses may have to contend with higher payroll costs from retaining older workers for fear that to retire them will end in litigation. This may also make it cost-prohibitive for employers to bring in new blood, which will do nothing to improve the youth unemployment figures nationally.
It will not be long before the adverse consequences of abolishing the NRA will start to bite. The Government does not appear to be sympathetic, as under the Pensions Bill announced in the Queen’s Speech this week, the existing complex system will be replaced with a new single-tier pension and bring forward an increase in the state pension age to 67 between 2026 and 2028. Unless you are wealthy or have been financially astute, the average employee by definition may well be working until they are at least 70.
Employers will sooner or later have to decide how to tackle the problem of older employees who by circumstance or design will not want to retire and whose performance, through no fault of their own, deteriorate. So, what is the most efficient way to deal with this? Performance-manage them out of the business? Make life difficult and hope they retire? Create a sham redundancy? Simply pay them off? All of these options are fraught with difficulty and this is a ticking time bomb that, before long, will start to explode
So, what can employers legitimately do? Acas (Advisory, Conciliation and Arbitration Service) advocate having regular conversations with all employees about a business’s expectations and what is expected of its employees, their performance and future plans. This should apply to both younger and older employees.
Employers should keep a basic record of conversations, objectives and progress. Employees of differing ages do not have to be treated the same but they should be treated fairly and consistently. If one group of employees is treated less favourably because of their age this will be age discrimination.
Employers have too often allowed older employees to coast to retirement rather than performance-manage them. In the current climate, this is a recipe for disaster. If an employee is not performing, no matter what age they are, employers should address the situation. Non-performing employees should be placed on a three-strikes and you are out Performance Improvement Plan.
This process must be documented and the employee warned at all stages of the consequences in not reaching each stage of the PIP. Any resultant dismissal would be for ‘capability’ and a potentially fair reason. A cautionary word of warning, along with age comes the possibility of physical or mental impairment, which may be a disability within the EqA. Therefore, it is important that any failure to achieve PIP targets is not because of an employee’s disability.
Equally, employers could just set a compulsory retirement age. But the 'test of objective justification' is not an easy one to pass and it will be necessary to provide supporting evidence. In setting a compulsory retirement age, employers should: (i) set out in writing the reason why; (ii) collate evidence to support this reason; and (iii) consider if there is an alternative, less or non-discriminatory way of achieving the same result. But setting your own compulsory retirement age comes with other risks. If you want to hang on to an employee beyond that age, and have not given other staff opportunity to ask for exception, you could end up in hot water.
Marc Jones is employment partner at Turbervilles Solicitors