1. In planning your changes, bear in mind that retirement age (the age at which employment automatically comes to an end) is distinct from pensionable age (the age at which a pension may be drawn). Changing one does not automatically result in a change to the other and, depending on the reason for your changes, you may want to change either or both. Each change may give rise to different legal issues.
2. Check contracts of employment. Changes to retirement age are likely to involve a change to contractual terms, requiring consent from employees. Changes to pensionable age may or may not require a change in contract terms and also may necessitate changes to the pension scheme, for which formalities will be required.
3. Whether or not a contractual changes is required, a process of consultation with employees is advisable, to avoid arguments that a change to retirement or pensionable age constitutes a breach of the implied duty of trust and confidence.
4. Consider offering a “sweetner” to encourage agreement to the changes. This could be a one-off payment or a small enhancement to pension rights. The incentive could be structured on an age-related sliding scale, since those nearest to retirement age could be worst affected by the changes.
5. Be careful that in the process of explaining the changes, unless you are qualified to do so, you don’t give financial advice to employees. In any written communication, make it clear that they must satisfy themselves of the financial implications of the changes. Consider whether to offer free access to independent financial advice to employees as part of consultation.
6. Don’t try to impose the change unilaterally. Attempts to impose changes without consent may lead to claims of constructive (unfair) dismissal. Even if employees do not assert constructive dismissal, it is risky to rely on deemed consent to contractual changes in these areas because the changes will not immediately impact on the employees and so tribunals may be reluctant to infer consent from a lack of immediate objection. Moreover, the potential liability may be very large if a change to pensionable age later is found not to have been effective.
7. If contractual changes are necessary and employees refuse to consent to these changes, then commercially it may be necessary to dismiss and offer re-engagement on the new terms. These dismissals potentially may be fair for “some other substantial reason” but must be handled carefully to minimise legal risk.
8. Remember that raising retirement age delays your ability to dismiss employees without the risk of unfair dismissal claims, since currently dismissals at or after the normal retirement age do not attract liability for unfair dismissal (though this is currently subject to legal challenge). Performance management may become more important for this reason, though it should be handled in an even-handed and consistent way across all age ranges.
9. If the changes impact differently on different groups of employees (for example, members of a final salary pension scheme as against a stakeholder scheme) then consider the potential for indirect discrimination claims from the worse-off group. These can arise if the two groups are comprised differently by reference to sex, race, disability, religion or belief or sexual orientation (after October 2006 it will also be necessary to consider age). Any disparate impact will need to be justified to be lawful (bearing in mind that only retirement ages are impacted by age discrimination proposals, not pensionable age).
10. Remember that, when age discrimination legislation is implemented in 2006, the legality of mandatory retirement ages will be affected. Current government proposals are that a default retirement age of 65 or more will be legal. Lower retirement ages will be unlawful unless objectively justified. However, the Government’s proposals have been criticised on the basis that they do not properly implement the European Employment Directive (Council Directive 2000/78/EC) and interest groups are threatening legal challenges on this basis. Separately, note that the default retirement age of 65 will be reviewed after 5 years and, if evidence suggests that it is no longer needed then it will be abolished.
Follow us online
