The government recently launched a consultation on scrapping the default retirement age in the UK. Currently, an employer can force an employee to retire at the age of 65. Under the new plans, employers could not force an employee to retire simply because they had reached age 65. If they do wish to retire an employee, they will need to provide a clear 'objective justification' - that is to say that you have a legitimate aim and that having that compulsory retirement age is a proportionate means of achieving the aim.

The key proposals are:

• From 6 April 2011, employers will not be able to issue any notifications for compulsory retirement using the DRA procedure in the Age Regulations. In practice, because six months notice must be given, to expire before 1 October, the last day for giving notice will be 31 March (and the consultation document is misleading in this regard).
• After 1 October 2011, employers will not be able to use the DRA to compulsorily retire employees - if they wish to use retirement ages they will have to be able to demonstrate these are objectively justified.
• Between 6 April and 1 October transitional arrangements will apply. Only people who were notified before 6 April (in practice, before 1 April), and whose retirement date is before 1 October can be compulsorily retired using the DRA.

Many employers will recognise the advantages of removal of the DRA, for example the opportunity to retain skills, experience and knowledge as well as reduce the bureaucracy associated with the procedural requirements in the Age Regulations. Some employers have already taken the plunge and operate successfully without a compulsory retirement age.

For the rest however, there is a great deal to consider, including addressing the financial implications, and there is relatively little time to prepare. Some challenges for employers will be the increased costs related to pensions and ill health retirement, permanent health insurance schemes, possible increase in sickness absences or the need to fund reasonable adjustments for disabled employees - a duty which is more extensive under the Equality Act due to come into force in October this year. There may also be a risk of increased tribunal claims from those older workers who feel they have been dismissed for no good reason.

Consequential changes will also need to be considered to pension schemes, and redundancy and other schemes/benefits that may rely on employees retiring at 65, (for example, in determining the levels of redundancy pay) should also be reviewed.

It is expected that most employers who sponsor defined benefit pension schemes will consider implementing formal flexible retirement provisions, if they haven't already done so, in recognition of the change. At the very least employers should review their current late retirement provisions to assess the actuarial/funding impact of a greater proportion of current active members wishing to retire later from the scheme as a consequence of working longer. Employers may also wish to consider implementing a later Normal Retirement Date under their schemes to reflect a trend towards a later contractual retirement age for employees.

Ill health retirement will also require careful consideration. Voluntary early retirement provisions in scheme rules are usually framed by reference to a Normal Retirement Date under the scheme - usually identical to contractual retirement date from service - so that the pension payable is often actuarially reduced as a result of being paid earlier that the scheme's Normal Retirement Date. The actuarial/funding impact on the scheme of individuals taking such early retirement will be more significant in a scenario where later retirement generally becomes more prevalent.

Similarly the funding impact of a member taking ill health early retirement will be relatively greater than if they had continued to a later retirement date from the scheme - although ill health retirement pensions are frequently unreduced for early payment. The significance of this issue would be reduced by implementing a later Normal Retirement Date under the scheme.

The government has asked in their consultation document if there is a need for guidance or a formal code of practice to explain workers new rights and what impact this may have on benefits, so it may be that this guidance is provided at a later stage. In essence, however, effective performance management, for all employees, lies at the heart of this issue. If the workforce is well managed, under-performance should be addressed at all levels, whatever the age of the individual in question.

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