Life expectancy increases by 15 minutes every hour. Fit and healthy 65-year-old men can expect to live to 88 and women longer still. By the time a man now starting his career reaches 65, he might expect to live until almost 100.
Both company pension schemes and personal pensions have tumbled in value during the recession. Retiring at 65 or earlier no longer seems realistic for most of us.
The authorities are at last waking up to the problem. In 2006 the Government responded to the Pension Commission’s report by deciding to phase in a state pension age of 68 for both men and women, between 2024 and 2044. Lord Turner of Ecchinswell, who chaired the commission, now wishes that its recommendations had been more radical and David Norgrove, the UK pension regulator, expects the state pension age to end up higher.
Clearly, most of us need to work longer and defer our intended retirements. For this to happen, employers will need to retain staff well beyond 65. The Government has separately been addressing this issue, too.
In 2006 laws prohibiting unjustified age discrimination were introduced, implementing a European Union directive. The regulations included an important exception in the form of a “default retirement age”, entitling employers to retire staff at 65 or older with immunity from legal claims. The Government originally said that there would be a review in 2011 to consider if the default age should be raised or removed. But economic and demographic conditions have now caused the Government to bring forward the review by a year.
Meanwhile, Age Concern is challenging the default retirement age in what is known as the Heyday case (after Age Concern’s membership branch for people nearing or in retirement), on the basis that it breaches EU law. The European Court of Justice (ECJ) in Luxembourg gave its ruling in March but sent the case back to be determined in the UK courts. A hearing in the High Court took place last month and judgment is expected this autumn.
The issue for the High Court is whether the default retirement age is appropriate and necessary to meet legitimate social policy aims. At the time it was introduced, ministers claimed that it was justified by employers’ concerns about workforce planning and impact on occupational pensions and other work-related benefits. But the ECJ’s judgment suggests a high justification threshold that cannot be met by “mere generalisations” — an observation that might be creating more than a little nervousness at Government HQ.
If the 65 retirement age ends up being abolished, whether as a result of Heyday or the Government’s review, employers will need to adjust quickly. This would not make operating a retirement age necessarily unlawful — employers would merely need to justify doing so.
For reasons that are unclear, the default retirement age applies only to employees and not partners or office holders. Many law firms and other professional partnerships have been uncertain how to deal with the issue of partner retirement. Typically, they have adopted a wait-and-see approach.
Some have been keeping a watchful eye on Leslie Seldon’s age discrimination claim against his former firm, Clarkson, Wright & Jakes, challenging the decision to retire him at 65. Both the employment tribunal and the Employment Appeal Tribunal said that the firm’s mandatory retirement age for partners had legitimate aims and was justified. It helped the firm both to ensure associates had opportunities for partnership and to plan ahead, because it would know when vacancies would arise.
The case will shortly be heard by the Court of Appeal, but it is very fact-specific and unlikely to clarify the legality of compulsory retirement ages generally. Clarkson, Wright & Jakes is a relatively small firm, with only ten partners at the relevant time. Its justifications for compulsory retirement may not be relevant to larger firms, particularly those in which most partners retire early voluntarily.
Seldon’s circumstances are also not the most sympathetic. He had indicated a willingness to retire at 65 and wound down his work over the two years before his retirement. It was only after discussions about a continuing role post-retirement broke down that he sued.
Abolishing or raising retirement ages creates challenges. At the moment the cost of insured benefits, such as medical or life cover, increases significantly after 65 but passing this on to older workers is likely to be unlawful. Provisions in the Equality Bill introduced in April are, however, likely to address this by making insurers justify increased premiums actuarially.
Employers will also need to dust down their performance management procedures to deal with ageing workers who hold out for a payoff, or sacked older staff who claim their dismissal was age-based.
Businesses fearful of managing without retirement ages should take comfort that other countries have learnt to manage without them. These include the United States and New Zealand, although in both cases there were sunset clauses giving employers plenty of time to adapt.
The author is James Davies a partner in the employment and incentives department at Lewis Silkin.