By Claire West

In a new paper the Institute of Directors argues that the Government’s proposal to abolish the Default Retirement Age (DRA) — the device that allows companies to retire their workers at 65 — will have a significant negative impact on employers, particularly small firms.

In order to support people who want to work past 65, the IoD argues that a better option would be to raise the DRA progressively in line with life expectancy. An obvious first step would be to raise it to 68 and, in time, to 70.

Key points:

· If the DRA is abolished, employers will be forced to dismiss staff if they want to remove underperformers over the age of 65. This would lead, inevitably, to many people’s careers ending in an undignified manner. This is likely to demoralise on a regular basis all participants in the dismissal process (e.g. managers and employees’ colleagues), not just the dismissed employees.

· Abolition would mean that for the first time thousands of retirements would have to be managed via the dismissal process. This has become excessively complex and protracted in recent years. More dismissals will only divert more management time away from growing businesses and jobs, and into handling processes and fighting vexatious claims before employment tribunals.

· We are particularly concerned that some employers, notably small firms not able to afford HR support, would feel under pressure to live with underperforming staff aged over 65. This would have a damaging effect on business performance and deny promotion opportunities to higher performing staff.

· Abolition may undermine Government policy. The Government wants people to work longer, but bigger firms with well resourced HR departments, knowing that they cannot rely on the DRA to retire staff at 65, are likely to become much more focussed on removing underperforming older workers at an earlier stage in their career e.g. at 60 or 62.

Commenting on the paper, Miles Templeman, Director-General of the Institute of Directors, 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.”

To read the full IoD paper see: 'Retirement age - why the Government has got it wrong'