HR focus - default retirement age: retiring gracefully

pensioners

The abolition of the default retirement age comes into force later this year. Paul Cann explores potential consequences for employers as they prepare to accommodate an ageing workforce.

Beware the law of unintended consequences. How often have we seen a well-intentioned initiative like the abolition of the default retirement age cause unforeseen problems further down the line?

Once this major change comes into effect on 1 October 2011, it certainly threatens major disruptions in the workplace. The impact will be felt not only in insurance and financial services but across UK PLC.

The thinking behind the abolition is the same reasoning that underpins the general thrust of contemporary equality legislation: discrimination in the workplace should be outlawed — in this instance on the grounds of age. And with this laudable premise in place, logic dictates that a person cannot be compelled to retire simply because they have celebrated a certain birthday.

Perhaps there are times, however, when a logical imperative should be tempered with some pragmatism. Put bluntly, can we really allow people to work indefinitely when we know there will inevitably come a point at which they can no longer complete their duties effectively?

Consider the case of an employee who wishes to continue working but whose performance deteriorates with age. This might easily lead to a situation where someone who has given the company decades of good service suffers the indignity of being dismissed because they are no longer up to the job.

Financial implications
It is easy to see the negative impact this situation could have on workplace morale and employee relations. It is also a fact of life that, as people age, they are more likely to experience health issues. Sickness absence is already a major drain on company resources, and an ageing workforce could exacerbate the problem. In addition, the new Equality Act rightly puts a heavy emphasis on companies making reasonable adjustments to accommodate disabilities, so firms may find themselves having to spend additional funds adapting their premises and processes.

Aside from direct impacts of this nature, businesses will also be faced with more subtle problems in terms of succession planning. At the moment, a business knows when individuals will be leaving and can plan accordingly. But where there is no such certainty, planning becomes much more of a challenge.

Sure, succession planning should anticipate surprise departures caused by unforeseen circumstances, and to that extent it is possible to have plans in place even for someone who has no fixed leaving date. But this is emergency planning, which is ultimately unsatisfactory when contemplating the long-term direction and welfare of a firm.

In the past, companies would, as a matter of course, participate in a pre-retirement dialogue with individuals approaching the statutory age. This will not be permitted once the default retirement age has been removed. But the individual will still be allowed to choose if and when to retire — potentially leaving an employer with a difficult period of transition.

We also need to consider how the change to retirement rules will affect younger employees further down the career ladder. If senior colleagues are not retiring, the number of development opportunities available to those beneath them are necessarily reduced. This might lead to frustration and, ultimately, the loss of valued, productive team members to a highly competitive jobs market.

And if a company is not seeing senior people depart, its need to recruit at the other end is also reduced. Surely a changing commercial world relies on the energy and fresh ideas brought by graduates and school-leavers. What will be the business and, indeed, social impact of this situation?

On top of all this, the legislation — as originally drafted — meant that many employee benefits such as income replacement plans, private medical insurance, critical illness cover and life insurance would have had to accommodate increased numbers of older members. Inevitably, faced with massive premium cost increases, some employers would have closed such schemes to the detriment of all concerned. Thankfully, the government has recently conceded that group risk benefits of this nature can apply an age limit in line with the state pension age.

Rise in life expectancy
None of the above thoughts should be seen as a criticism of older workers or the desire of many individuals to work beyond traditional retirement ages. Indeed, in 2011 we are generally fitter, healthier and more capable at 65 and 70 than any previous generation. Life expectancy continues to rise, and it is only fair that society takes steps to adjust to the aspirations of its older citizens.

Likewise, it is important to acknowledge the many benefits that accrue from having older and more experienced staff in the workplace. But we must remain conscious of the possible challenges that might arise if people can simply continue to work for as long as they choose. One alternative might have been to increase the default retirement age — perhaps in line with the state pension age — rather than to go for abolition in one fell swoop.

As with all legislative changes, we can expect to see the rules tried and tested in the courts before the precise impacts are known. But one thing is clear — the lawyers specialising in this area will have plenty to keep them busy well into a very ripe old age.

Paul Cann is HR Director of Groupama Insurances

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