By Max Clarke

The Government must urgently clarify its position on retirement rules and how it will respond to businesses' concerns before it scraps the Default Retirement Age (DRA) next April, the CBI said today (Monday).

The UK’s leading employers’ group has said that companies will face huge uncertainty and greater risk of tribunal claims if the Government does not tackle the unintended consequences of the decision.

The CBI is proposing solutions to five key problems that the change will create for employers. It is concerned about the consequences, not the principle, of not having a DRA.

The removal of the DRA will be one of the biggest changes to employment law in 2011; the rules around retirement will be less clear for employers and their staff, and the resulting process potentially less dignified and more complicated.

Despite announcing that the DRA will be phased out from April, the Government has not yet produced any guidance or draft regulations to clarify for employers or staff what the new legislative framework will look like.

In the absence of a replacement to the DRA, the CBI is calling for:

* the change to be delayed for a year
* retirement conversations to be protected
* the law on performance management and unfair dismissal to be made simpler and more balanced
* the Government to spell out how companies can use 'objective justification' to defend a retirement age
* the state pension age to be used as a milestone after which employers would no longer have to offer occupational benefits.


John Cridland, CBI Director-General Designate, said:

"The ageing population and the shortfall in pension savings make it inevitable that people will want to continue working for longer. Employers understand this, and businesses value the skills, experience and loyalty that older workers bring.

"However, in certain jobs, especially physically-demanding ones, working beyond 65 is not going to be possible for everyone. The DRA has helped staff think about when it is right to retire, and has also enabled employers to plan more confidently for the future.

"With the scrapping of the DRA in April, a legislative void is opening up. We need to modernise our employment law framework to ensure that it is fit for purpose.

"In the majority of cases this will not be an issue, but in a minority it will be a serious problem for all concerned.

"The Government needs to act fast, and there should be no changes to the retirement framework until these issues are resolved."

Solutions needed

With the number of tribunal claims rising by 56% last year, it is unsurprising that nearly half of employers are worried about more age-related claims once the DRA has gone1.

At a time when the Government is looking to the private sector to generate growth to fuel the recovery, exposing employers to unnecessary risk and cost is counter-productive.

Companies don’t want to lose good people, whatever their age. Currently, employees have the right to request to work beyond the age of 65, and in over 80% of cases these requests are accepted by employers.

Four out of five employers set a default age for retirement, but it is only used in a minority of cases, where it is not possible for an employee to continue post-65. They do this because capability reviews are not an effective or timely way of managing the issue.

The Government must tackle the unintended consequences of removing the DRA and the practical problems left in its wake. The CBI is proposing the following solutions:


PROBLEM

The last DRA-related retirement notices will be served in April, yet employers are still in the dark about the post-DRA legal framework. The Government has not set out its plans or published any guidance or new regulations for scrutiny.


SOLUTION

The Government must delay scrapping the DRA and businesses should be given until April 2012 to prepare for legislative change. If people are going to continue working for longer, employers must have greater legal clarity. The Government’s employment law review is a perfect opportunity to amend the legislative framework on employment to help employers operate in the absence of the DRA safety net.


PROBLEM

Post-DRA, employers will not be able to talk openly with staff about retirement plans, without fear of age discrimination claims. Employers need to be able to plan for skills gaps in their workforce by initiating conversations about retirement plans. Employees might want to ask about lighter duties or reduced hours.


SOLUTION

To encourage a flexible approach to retirement, the Government must encourage open dialogue. The law should provide for protected conversations between employer and employee that are not open to legal challenge. These retirement conversations should be protected in the age regulations - employers must not be penalised for effective succession planning.


PROBLEM

Without the DRA, employers will be unable to retire an employee whose performance has started to decline with age. They will be forced instead to subject employees to capability reviews and rigorous performance management procedures. Where the cause of the decline is age-related, such procedures are demeaning and disingenuous as the employee is not going to improve. For an employer, performance-related dismissals are already the hardest kind of dismissal to get right. Many dismissals take over a year and cause undue stress and cost to both parties. This is not a good way to end an employment relationship.


SOLUTION

Use the employment law review to streamline and rebalance the law on performance management and unfair dismissal. Introduce simpler performance and capability procedures for employers and develop better guidance for line managers to deal with declining performance among older workers. The Government should also make compromise agreements more straightforward to use.


PROBLEM

Once the DRA is removed, employers will have to use objective justification - a complex legal concept - if they wish to retain a retirement age, such as for a particular job type or group. Many employers want to keep a retirement age on clear health and safety grounds but worry that the legal bar for satisfying the test is too high. They shouldn’t have to wait for the first accident to gain sufficient proof.


SOLUTION

The Government must spell out for companies how to use 'objective justification' to defend a retirement age. The guidance must set out clear examples showing how to pass the legal test. Recent case law suggests that employers could use workforce planning and opportunities to promote younger workers as reasonable motivations for introducing a retirement age. The Government should do more work to identify particular professions or roles where a compulsory retirement age might be justified at a national level — for health and safety or other reasons.

Mr Cridland added:

"The Government must seize the opportunity to change existing employment legislation so that employers can have confidence when planning to deliver future orders.

"As our practical examples from the workplace illustrate, there is a limit to how many older employees can be on lighter duties. The job still needs to get done, and without a DRA to allow sensible long-term planning, the ability to have the right skills mix and deliver to tight production timescales could be damaged. An urgent solution needs to be found."