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Neil Davey

Spotted Zebra

Senior Content Manager

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Retirement age abolishment would herald major HR rethink

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Proposals by the UK’s equality watchdog to abolish a default retirement age would require a careful rethink of many existing HR policies and practices, according to one consultancy.

A report by the Equality and Human Rights Commission has recommended that the government scrap a law, which enables employers to force staff to finish work at 65 if they are male and 60 if they are female, because it was outdated.

Such a situation did not reflect the realities of an ageing population and an increased willingness to work by older people, the Commission said. A survey undertaken by it indicated that 24% of men and 64% of women planned to work beyond their retirement age.

But the watchdog also said that the government should extend the right to request flexible working to all staff and consider introducing incentives for personnel that chose to work in this way, particularly if they are over 50.

Chris Johnson, head of human capital at Mercer, warned that such changes would have inevitable HR implications, however. For example, some employers have to date used age-based retirement as an alternative to redundancy or to engage in active performance management. They have also used the situation as a means of understanding whether a particular job should exist into the future or not.

But if staff can choose how long they wish to remain in the workforce, employers will need to ensure that they apply grounds for dismissal to both younger and older personnel in an even-handed way. They will also be unable to use age as a factor without risking a discrimination law suit, which carries an unlimited liability.

This means that organisations may need to refine their performance management processes and may find that they have to introduce more redundancy programmes.

The issue of funding

Moreover, because senior roles, which are typically held by older staff, may become available in a less predictable and frequent fashion in the short- to medium-term, effective talent management programmes and succession planning processes will have to be introduced.

Flexible working options such as part-time working and partial retirement are also likely to become de rigueur. But Johnson backed up the Commission’s findings that such options would need to be provided across the organisation.

"Interestingly, offering these programmes only to older employees could be discriminatory. The issue of job/career flexibility is an issue for the whole workforce, though certain exemptions apply to retirement plans," he said.

But reward management issues will likewise have to be addressed. Older employees are typically paid more than younger personnel, not least because they have spent longer in their pay grade or band.

"Funding is a key issue," Johnson said. "Predictable retirement of older and better paid employees is a source of reward funding that can be recycled into the wage bill. As employees get older, however, this source of funding will reduce."

Another challenge relates to equal pay. Unless there is a reason for it, there is a risk of discrimination if older staff members are paid more than younger ones, particularly as older personnel are currently more likely to be male and younger workers female.

Finally, the fact that working lives are longer could also have an impact on pension plan funding and liabilities. The situation is likely to generate changes in the design of both pre- and post-retirement benefits, including group life cover and health insurance, requiring the development of broader benefit strategies.

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Neil Davey

Senior Content Manager

Read more from Neil Davey
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