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Employers express dismay at retirement age change

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Employers’ groups have voiced worries at the Government’s decision to go ahead with plans to abolish the default retirement age of 65.

The change will be phased in from 6 April to 1 October 2011.

It will mean that employers will be required to base any decision on whether an employee can continue working not on their age but on their ability to carry out their duties.

John Cridland, the CBI’s director general designate, argued that the move will impose a number of practical difficulties on employers.

Mr Cridland said: “The impact on employers, especially smaller ones, will be considerable. There is not enough clarity for employers on how to deal with difficult questions on performance. Less than three months is not enough time for businesses to put in place new procedures. The outcome will be more unpleasant and costly legal action.

“Employers accept that more people will want to work beyond 65 as the population ages, but the Government has not recognised the fundamental question, which is how should employers manage retirement on the basis of a performance appraisal. This will be particularly acute in physically-demanding sectors.”

The CBI wanted the measure to drop the DRA put back a year.

Mr Cridland continued: “The majority of respondents to the Government’s consultation had concerns about the adequacy of existing employment law and about the timescale for the removal of the DRA. This evidence strongly supports the CBI’s concerns, but the Government has ignored these legitimate consultation findings.”

The Government has promised help for employers in dealing with the move.

It has published new guidance on the change as well as guidelines setting out how employers can manage without fixed retirement ages and benefit from the employment and retention of older workers.

The Coalition has also pledged to remove the administrative burden of statutory retirement procedures. With the DRA dropped, it said, there is no reason to keep employees ‘right to request’ working beyond retirement or for employers to give them a minimum of six months notice of retirement.

Also to come into effect will be an exception so that there are no unintended consequences for employers who voluntarily offer group risk insured benefits (income protection, life assurance, sickness and accident insurance, including private medical cover). This means that firms will not have to pay pension benefits and private medical insurance cover once an employee reaches the state retirement age.

However, Mr Cridland added: “While it is helpful that group insurance products are being excluded from age discrimination coverage, we now look to the Government’s employment law review to help businesses, especially smaller ones, to deal with the practical implications of the decision to scrap the DRA. The law of unfair dismissal also needs to be revised and simplified.”

Anxieties persist that some businesses will be tempted to retire employees approaching 65 before 6 April in order to avoid the possibility of employment claims after that date.

The timescale of the change also prompted unease at the EEF, the manufacturers’ group.

Steve Radley, the EEF’s director of policy, commented: “Government has missed an opportunity to recognise business concerns by pressing ahead with this change. By doing so in such a short period of time it is giving employers little or chance to prepare for the practical impact on their business of such an important change to employment legislation.

“This is bound to create considerable legal problems and uncertainty for companies and it is now essential that employers are provided with sufficient guidance.”

The Institute of Directors (IoD) questioned the decision to drop the default retirement age altogether.

Miles Templeman, the IoD’s director general, said: “The Government’s proposal to abolish the DRA tells us that ministers are less focussed than they should be on supporting entrepreneurs and the business community.

“Removing the DRA, which gives employers flexibility in managing employees, is incompatible with the Government’s stated desire to boost enterprise and create new jobs. In this era of high unemployment the Government should be making it easier for businesses to employ people, not harder.”

However, Chris Ball of The Age and Employment Network countered that many businesses had already voluntarily left the DRA behind.

He said: “This legislation was announced in July 2010 and in fact the writing has been on the wall since employment equality regulations were passed in 2006.

“I think we’ve got to debunk some of the myths. The idea, for example, that you can no longer dismiss someone whose failing competency gives rise to doubts about whether they can properly do the job is nonsense.”

Dianah Worman, public policy adviser at the Chartered Institute of Personnel and Development (CIPD), also supported the dropping of the default retirement age, arguing that the shift must mark a step-change in the attitude of employers towards older workers, describing the DRA as a smokescreen for poor management practices.

She said: “Age is not a key determinant of capability. Poor performers can and should be tackled by managers regardless of their age. Proper performance management makes it easy for employers to hang on to the talented and committed, and dismiss people who are not performing.

“The date of someone’s birthday should not come into such decisions, but the existence of the DRA has acted as a smokescreen and easy get-out clause for poor management for far too long. With the clear protection in the legislation of a right for employers to offer an objective justification of a fixed retirement age for occupations where physical capacity is a particular requirement, employers have nothing to fear from this legislation.”

According to CIPD research over two-fifths of individuals intend to work beyond the age of 65, with 72 per cent citing financial necessity as the main reason for staying on. A further 28 per cent of employees said the offer of more flexible working arrangements by their employer would encourage them to work on beyond the current retirement age.